Question

Compute the future value in year 10 of a $1,000 deposit in year 1 and another $1,500 deposit at the end of year 4 using an 8 percent interest rate.

a. $3,120.73
b. $4,379.31
c. $4,500.00
d. $5,397.31

Answer 1

To compute the future value, we need to determine the value of each deposit after 10 years using compound interest. The total future value in year 10 is $4,145.73.

Step-by-step explanation:

To compute the future value, we need to determine the value of each deposit after 10 years using compound interest.

The value of the first deposit after 10 years is:

Future Value = Principal Amount * (1 + Interest Rate)Number of Years

= $1,000 * (1 + 0.08)10 = $1,855.97

The value of the second deposit after 10 years is:

Future Value = Principal Amount * (1 + Interest Rate)Number of Years

= $1,500 * (1 + 0.08)6 = $2,289.76

Adding these two values together, the total future value in year 10 is:

Total Future Value = $1,855.97 + $2,289.76 = $4,145.73

Therefore, the correct answer is option d. $5,397.31.