Question

You estimate that you can save $3,800 by selling your home yourself rather than using a real estate agent. What would be the future value of that amount if invested for five years at 5 percent? Use Exhibit_1-A. (Round time value factor to 3 decimal places and final answer to 2 decimal places.)

Answer 1

$4848.8

Explanation:

(1 + 0.05)⁵ = 1.276

FV = 3800 × 1.276

= 4848.8

Answer 2

Explanation:

Assuming it was compounded annually. We would apply the formula for determining compound interest which is expressed as

A = P(1+r/n)^nt

Where

A = total amount in the account at the end of t years

r represents the interest rate.

n represents the periodic interval at which it was compounded.

P represents the principal or initial amount deposited

From the information given,

P = $3800

r = 5% = 5/100 = 0.05

n = 1 because it was compounded once in a year.

t = 5 years

Therefore,.

A = 3800(1 + 0.05/1)^1 × 5

A = 3800(1.05)^5

A = 3800 × 1.276

A = $4848.80