Chapter 4, Problem 1PROB

Summary Introduction

If S invests $700 today at 4% interest compounded annually, calculate the balance after four years.

Future value is the value of the current investment or series of payments in the future compounded at predetermined interest rate for a specified period.

$FV=PV{\left(1+r\right)}^n$

Here,

The future value is “FV”.

The present value is “PV”.

The interest rate is “r”.

The maturity period of time period is “n”.

Explanation of Solution

Calculate the future value as follows:

$\begin{array}{c}FV=PV{\left(1+r\right)}^n\\ & =\$700\times {\left(1+4\%\right)}^4\hfill \\ & =\$700\times 1.16985856\hfill \\ & =\$818.900992\text{ or \$818}\text{.90}\hfill \end{array}$

Therefore, the future value is $\boxed{\text{\$818}\text{.90}}$.