Chapter 13, Problem 1T

Find all monetary answers to the nearest cent. Use tables and formulas from the chapter as necessary. Finding the Future Value of a Deposit Find the future value of each deposit.

$1000 for 5 years at 4% simple interest

To determine

To calculate: The future value of the deposits if the principal amount is $1,000, the rate of simple interest is 4% and the time is 5 years.

Answer to Problem 1T

Solution:

The future value of the deposit is $1,200.

Explanation of Solution

Given:

The principal amount is $1,000, the rate of simple interest is 4% and the time is 5 years.

Formula used:

$A=P\left(1+rt\right)$.

P is the principal amount, r is the simple interest rate and t is the time.

Calculation:

To compute the future value of the deposit, multiply the principal with adding 1 into the product of rate and time:

$\begin{array}{c}A=P\left(1+rt\right)\\ =\$1,000\left(1+0.04\times 5\right)\\ =\$1,000\left(1+0.20\right)\\ =\$1,000\times 1.20\end{array}$

After multiplying the aforementioned equation, the result will be:

$A=\$1,200\text{.}$