Find the future value one year from now of a $7,000 investment at a 3% annual compound interest rate. Also calculate the future value if the investment is made for 2 yeaars?
To find the future value of an investment, we can use the formula for compound interest:
Future Value = Principal * (1 + Interest Rate)^Number of Periods
For the first scenario, where the investment is made for one year with a 3% annual compound interest rate, we can plug in the values:
Principal = $7,000
Interest Rate = 3% = 0.03 (in decimal form)
Number of Periods = 1
So, the future value after one year can be calculated as:
Future Value = $7,000 * (1 + 0.03)^1
Simplifying the equation, we get:
Future Value = $7,000 * 1.03
By multiplying, we find that the future value after one year would be $7,210.
For the second scenario, where the investment is made for two years, we can use the same formula:
Principal = $7,000
Interest Rate = 3% = 0.03 (in decimal form)
Number of Periods = 2
Now, let's calculate the future value after two years:
Future Value = $7,000 * (1 + 0.03)^2
Simplifying the equation, we get:
Future Value = $7,000 * 1.0609
By multiplying, we find that the future value after two years would be $7,426.30.