From the list of statements, let's select the examples that illustrate the difference between a compound interest problem involving future value and a compound interest problem involving present value.
Apply the compound interest formula:
Where:
A represents the future value which is the final amount after a given period of time.
P represents the present value which is the initial amount invested.
When you are required to find the present value, the goal is to find how much money has to be invested initially in order to have a certain amount in the future. Here, the future value is always given.
When you are required to find the future value, the goal is to find how much money there will be after a certain amount of time has passed given an initial amount to invest. Here, the present value is always given.
Therefore, the correct examples are:
In a compound interest problem involving present value the goal is to find how much money has to be invested initially in order to have a certain amount in
the future. In a problem involving future value the goal is to find how much money there will be after a certain amount of time has passed given an initial
amount to invest.
ANSWER: A.
In a compound interest problem involving present value the goal is to find how much money has to be invested initially in order to have a certain amount in
the future. In a problem involving future value the goal is to find how much money there will be after a certain amount of time has passed given an initial
amount to invest.