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In finance, the future value of money refers to what an amount now would be worth in the future. This could be more or less and is dependent on the rate of growth.
In the given problem, the amount earns an interest at the rate of 5% compounded annually.
The initial amount of $300 after 5 years would become:
300*(1 + 5%)^5
The future value of $300 growing at a rate of 5% is $382.88
From enunciation, we know what the present value is, namely $300.
The future value could be determined when the present value, the interest rate and the number of years are known.
Future value = Present value*(1+r)^t
r is the interest rate and t is the number of years considered.
We'll identify the interest rate r as being 5% and the number of years t as being of 5.
To determine what is the future value after 5 years, at 5% compound interest, we'll use the following formula:
Future value = 300*(1 + 5/100)^5
Future value = 300*(1+0.05)^5
Future value = 300*1.2762
Future value = $382.884
The future value, after 5 years, starting from the present value of $300, at the rate of interes of 5%, is of $383.
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