If an investment of $5,000 today earns 5% in each of the next five years, and then earns 7% per year for five years after that, how much will the investment be worth at the end of the ten years?
Is the interest compounded?
Compounded daily, quarterly, yearly, etc ?
It doesn't indicate
$5,000 @ 5% for 5 yrs
then 7% for 5 yrs
I = PRT
I = 5000(0.05)(5)
I = 250(5)
I = 1250.00
5000 + 1250.00 = 6250.00
I = PRT
I = 6250(0.07)(5)
I = 437.50(5)
I = 2187.50
6250.00 + 2187.50 = 8437.50
To calculate the future value of an investment, we can use the formula for compound interest:
Future Value = Present Value * (1 + interest rate)^number of periods
Let's break down the problem into two parts - the first five years and the next five years.
First, let's calculate the future value after five years, given an initial investment of $5,000 and an interest rate of 5% per year:
Future Value for the first five years = $5,000 * (1 + 0.05)^5
We can simplify this equation:
Future Value for the first five years = $5,000 * (1.05)^5
Using a calculator, we can calculate that the future value after five years is approximately $6,638.17.
Next, let's calculate the future value after another five years, but this time with an interest rate of 7% per year:
Future Value for the next five years = $6,638.17 * (1 + 0.07)^5
Again, we can simplify this equation:
Future Value for the next five years = $6,638.17 * (1.07)^5
Using a calculator, we can calculate that the future value after the next five years is approximately $9,636.18.
Finally, to get the total value at the end of the ten years, we add the two values together:
Total Value at the end of ten years = Future Value for the first five years + Future Value for the next five years
Total Value at the end of ten years = $6,638.17 + $9,636.18
Using a calculator, we can calculate that the investment will be worth approximately $16,274.35 at the end of the ten years.