Question

Two years ago, Sam invested $12,400. In 3 years from today, he expects to have $15,700. If Sam expects to earn the same annual rate of return after 3 years from today as the annual rate implied from the past and expected values given in the problem, then how much does Sam expect to have in 6 years from today? g

Answer 1

$18,750

Step-by-step explanation:

Present value (PV): $12,000

Tenor: 3 years

Future value (FV): $15,700

We have the formula:

FV = PV*(1+ annual rate) ^ number of year

15,700 = 12,000 * (1 + rate) ^3

-> Rate = (15,000/12,000)^(1/3) – 1 = 7.722%

If Sam invest in 6 year, the amount he expect to have is the future value in below calculation:

FV = 12,000 * (1+ 7.722%)^6 = 18,750