Marcos is investing $5 today at 7 percent interest so he can have $35 later. This $35 is referred to as the: a. true value b. future value c. present value d. discounted value e. complex value
b. future value
To find the term that refers to the $35 obtained from investing $5 at 7% interest, we can use the concepts of present value and future value in finance.
The present value (PV) of an investment is the current worth of a future sum of money. It represents the amount of money that needs to be invested today to achieve a particular future value (FV).
In this case, Marcos is investing $5 today to obtain $35 later. The $35 is the future value (FV) of the investment. Therefore, the correct answer is:
b. future value
The $35 that Marcos will have in the future is referred to as the "future value" of his investment. This is because it represents the amount of money that Marcos will receive at a later date as a result of investing his $5 today at a 7 percent interest rate.
To arrive at this answer, we can use the concept of compound interest. Compound interest is a calculation that takes into account both the initial amount (known as the principal) and the interest earned over time. The formula for calculating the future value of an investment is:
Future Value = Principal * (1 + Interest Rate)^Number of Periods
In Marcos' case, the principal (i.e., the initial amount) is $5, the interest rate is 7 percent or 0.07, and the future value is $35. We can rearrange the formula and solve for the number of periods:
Number of Periods = log(Future Value / Principal) / log(1 + Interest Rate)
Plugging in the given values, we get:
Number of Periods = log(35 / 5) / log(1 + 0.07)
= log(7) / log(1.07)
≈ 13.23
Therefore, Marcos would need to invest his $5 for approximately 13.23 periods to achieve a future value of $35.