Question

sarah plans to buy a car in five years, so she invest $10,000. she receives an annual interest rate of 5%, compounded semiannually. what’s the future value of the $10,000 investment in 5 years?

Answer 1

$12,800.85

Explanation:

Answer 2

$12,800.85

Explanation:

Use the FV formula ; FV= PV(1+r) ^t

r = discount rate = 5%/2 = 2.5% or 0.025 as a decimal

t = total duration of investment = 5 *2 = 10 since it's semiannual compounding

PV = Amount deposited in present value terms = $10,000

FV = 10,000* (1+0.025)^10

FV = 10,000 *1.2800845

FV = 12,800.845

Therefore, Sarah will have $12,800.85 in 5 years.