Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
If your bank pays you 1.5% interest and you deposit $700 today, what will be your balance in seven
years?
years?
The bank balance will be $ ______.
(Round to the nearest cent.)
(Round to the nearest cent.)
Expert Solution
Step 1
Time value of money (TVM) means that the amount of money received in the present times will have more than the money received in the future times. It is based on the concept that the earlier receipts are worth more than the later receipts. The process of finding the future value based on the present value, interest rate and the compounding period is called the compounding.
It is calculated as follows:
Where,
FV = Future value
PV = Present value
r = Interest rate
n = Number of compounding period
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