Question

The formula f=2000(1+0.03) exponent n is used to calculate the future value of a 2000 investment after n number of years. What is the value of the investment, to the nearest cent, after 18 months?

Answer 1

$2102.48.

Explanation:

FV=PV⋅(1+r)n

where:

FV is the future value

PV is the present value

r is the interest rate per period

n is the number of periods

In your case, the present value is 2000, the interest rate per year is 0.03, and the number of years is 18/12 = 1.5. However, since the formula uses the interest rate per period and the number of periods, you need to convert them to match the frequency of compounding. For example, if the interest is compounded monthly, then you need to divide the annual interest rate by 12 and multiply the number of years by 12. Let’s assume that the interest is compounded monthly in this case. Then, you can plug in the values into the formula and get:

FV=2000⋅(1+120.03​)1.5⋅12

Using a calculator, you can simplify this expression and get:

FV=2000⋅1.031518

FV=2000⋅1.0512

FV=2102.48