Homework Help

Money,banking and finacial marketsCompute the future value of $100 at 8 percent...

user profile pic

ranger1980 | Student, Undergraduate | Valedictorian

Posted February 24, 2012 at 12:09 PM via web

dislike 1 like
Money,banking and finacial markets

Compute the future value of $100 at 8 percent interest rate 5, 10, and 15 years in the future. What would the future value be over these time horizons if the interest rate were 5 percent?

7 Answers | Add Yours

user profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted February 24, 2012 at 12:38 PM (Answer #2)

dislike 0 like

For the 8% interest, your investment would be worth $146.93 in 5 years.  In 10 years it would be worth $215.89.  You'll notice that in the first 5 years you made about $47 in interest while you made about $68 in the next 5 years.  This is why compound interest is such a great thing.  In the third five years, you make even more, ending up with $317.22 at the end of that period.

user profile pic

litteacher8 | Middle School Teacher | (Level 1) Distinguished Educator

Posted February 24, 2012 at 1:32 PM (Answer #3)

dislike 0 like

The longer you keep the money in an investment, the more interest you would make.  However, considering the small amount of money, it probably is not worth it.  I don't know where you'd get an 8% interest rate in this economy.  There is also the opportunity cost of not using the money elsewhere.

user profile pic

justaguide | College Teacher | (Level 2) Distinguished Educator

Posted February 24, 2012 at 2:22 PM (Answer #4)

dislike 0 like

The future value of P at an interest rate r per year after t years is P*(1+r)^t

At 8 percent interest rate the future value of $100 after 5 the value would be $146.93, after 10 years it would be $125.89 and after 15 years it would be $317.21

If the interest rate were 5%, after 5 years the future value of $100 would be $127.62, after 10 years it would be $162.88 and after 15 years it would be $207.89

user profile pic

accessteacher | High School Teacher | (Level 3) Distinguished Educator

Posted February 24, 2012 at 2:28 PM (Answer #5)

dislike 0 like

Certainly an understanding of interest rates is a great way of gaining money, and this is something that those shrewd enough to do so can use to their own benefit. However, the problem with this is you are dependent upon a healthy economy with good interest rates that will boost your savings. As #2 makes clear, you can make significant money out of your money, ending up with a total of $317.22 at the end of the entire period. Making money out of money you already have is obviously a good thing.

user profile pic

vangoghfan | College Teacher | (Level 2) Educator Emeritus

Posted February 24, 2012 at 2:52 PM (Answer #6)

dislike 0 like

It would be helpful to me (and probably to the original asker of the question) if someone could explain the variations in the numbers cited above.  Is one set of calculations correct and the other incorrect, or were the calculations done differently?

user profile pic

lmetcalf | High School Teacher | (Level 3) Senior Educator

Posted February 25, 2012 at 1:21 AM (Answer #7)

dislike 0 like

This exercise certainly shows you the value of compount interest because each day the money grows, so the interest payment is higher. A sad reality check would be to do this same exercise with the "real" interest rate in today's economy. My standard bank savings account pays an interest rate of .1%. It makes the account merely a safe place to keep my money, but I don't earn enough to make it place to keep any substantial investment and would hardly be worse off if I kept the money in a cookie jar at home.

user profile pic

ranger1980 | Student, Undergraduate | Valedictorian

Posted February 25, 2012 at 11:21 PM (Answer #8)

dislike 0 like

The future value of P at an interest rate r per year after t years is P*(1+r)^t

At 8 percent interest rate the future value of $100 after 5 the value would be $146.93, after 10 years it would be $125.89 and after 15 years it would be $317.21

If the interest rate were 5%, after 5 years the future value of $100 would be $127.62, after 10 years it would be $162.88 and after 15 years it would be $207.89

Thanks for your post, it being very helpful for me to have an understanding on the book and to be able to implemente into that questions. I hope we are in the same page in this anwser. I did my calculation and they're the same so wish me luck in this one. 

Join to answer this question

Join a community of thousands of dedicated teachers and students.

Join eNotes