If you invest $500 for one year at a rate of 8 percent per year, how much interest will you earn?
To calculate: The interest earned.
Introduction:
The future value of money refers to the amount of dollars that an investment grows over a definite period at a particular rate of interest rate. In other words, it refers to the future value of present cash investments.
Answer to Problem 4.1C
The interest earned on $500 is $40.
Explanation of Solution
Given information:
Person X invests $500 for one year. The rate of interest is 8 percent.
The formula to calculate the future value:
Where,
“FV” refers to the future value or the current market value
“PV” refers to the present value
“r” refers to the simple rate of interest
“t” refers to the number of years or periods of investment
Compute the future value of investment:
Hence, the value of deposit after one year is $540.
Compute the interest earned:
The difference between the future value and the present value is the interest earned on the investment. The deposit value is $500. After one year, Person X receives $540. Hence, the interest received on the deposit is $40
Want to see more full solutions like this?
Chapter 4 Solutions
Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
- You want to invest $8,000 at an annual Interest rate of 8% that compounds annually for 12 years. Which table will help you determine the value of your account at the end of 12 years? A. future value of one dollar ($1) B. present value of one dollar ($1) C. future value of an ordinary annuity D. present value of an ordinary annuityarrow_forwardCalculating interest earned and future value of savings account. If you put 6,000 in a savings account that pays interest at the rate of 3 percent, compounded annually, how much will you have in five years? (Hint: Use the future value formula.) How much interest will you earn during the five years? If you put 6,000 each year into a savings account that pays interest at the rate of 4 percent a year, how much would you have after five years?arrow_forwardYou know that you'll inherit $10,000 in 19 years. If you borrow $6,000 now and plan to pay it off with the money you'll inherit, what is the highest annual interest rate you can afford on the loan?arrow_forward
- You plan to invest $2,000 per year into a retirement account. If you earn a compound annual rate of return of 5%, how many years will it take you to reach a balance of $500,000?arrow_forwardSuppose you save $4,000 per year at the end of each year for 3 years and earn 5% interest per year. How much will you have at the end of 3 years? Suppose you save $1,000 per year at the beginning of each year for 3 years and earn 5% interest per year. What is the present value of this annuity?arrow_forwardIf you want to receive $1,000 each year for the next three years how much should you invest today? Assume the annual interest rate to be 10%.arrow_forward
- What would the value of your investment be after five years if you invest P5,000 in a financial security with an annual return of 8% and reinvest the proceeds each year?arrow_forwardSuppose you are going to invest $11,000 per year for six years. The appropriate interest rate is 9 percent. What is the future value if the payments are made on the last day of the year? What if the payments are made on the first day of the year? a) $82,756.68; $90,204.78 b) $90,204.78; $82,756.68 c) $49,345.10; $53,786.16 d) $53,786.16; $49,345.10arrow_forwardIf you were to invest $2000 today and in return receive $450 anually for 6 years, what is your annual rate of return?arrow_forward
- How much money should you be willing to pay now for a guaranteed $500 per year for 10 years starting next year, at a rate of return of 15% per year?arrow_forwardSuppose you are going to receive $13,500 per year for five years. The interest rate is 8.4%a. What is the present value of the payments if they are in the form of an ordinary annuity? What is the present value if the payments are an annuity due?b. Suppose you plan to invest the payments for five years. What is the future value if the payments are an ordinary annuity? What if the payments are annuity due?c. Which has the highest present value (future value), the ordinary annuity or annuity due?arrow_forwardIf you earn an annual interest rate of 9.8 percent, how many years will it take to triple your money?arrow_forward
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENTPrinciples of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
- Pfin (with Mindtap, 1 Term Printed Access Card) (...FinanceISBN:9780357033609Author:Randall Billingsley, Lawrence J. Gitman, Michael D. JoehnkPublisher:Cengage Learning