Calculate the future value of $5000 given that it will be held in the bank for 6 years and arn an annual interest rate of 7%.
To calculate the future value of an amount invested at an annual interest rate, we can use the formula for compound interest:
Future Value = Present Value × (1 + Interest Rate)^(Number of Periods)
In this case, the present value is $5000, the interest rate is 7% (0.07 in decimal form), and the number of periods is 6 years.
Applying these values to the formula, we get:
Future Value = $5000 × (1 + 0.07)^6
To calculate this, perform the following steps:
1. Add 1 to the interest rate: 1 + 0.07 = 1.07
2. Raise the result to the power of the number of periods: 1.07^6 ≈ 1.40255
Finally, multiply the result by the present value:
Future Value = $5000 × 1.40255 ≈ $7012.75
Therefore, the future value of $5000, with an interest rate of 7% per year over 6 years, is approximately $7012.75.