- FUTURE
(MATURITY) VALUE
-
- Example
1 | Example
2 | End of Page
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- The future value of
a sum of money can be found using the formula S = P(1 + rt)
-
- where:
- S is the future value (in dollars)
- P is the principal invested (in
dollars)
- r is the rate of interest (a decimal)
- t is the time (in years)
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- Examples:
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-
- 1. Jeff wants to buy
a new mountain bike in two years and has decided to put $450.00
into his bike fund at the bank. If he earns an annual interest
rate of 5.5%, how much will he have when he goes to buy his bike?
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- a) Convert r to a decimal
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- 5.5% ------> 0.055
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- b) Use the future value
formula to solve for S
-
- S = P(1 + rt)
- S = $450.00[1 + (0.055)(2)]
- S = $450.00(1.11)
- S = $499.50
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- After 2 years, Jeff
will have $499.50 to buy his new bike.
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- 2. Shelly is interested
in buying a house, sometime in the near future. She decided to
invest some money today, so that she will have the $5000.00 that
she needs for the down payment in 3 years. If she was able to
find a bank that would give her an interest rate of 8.25% annually,
how much does she need to invest today?
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- a) Manipulate the future
value formula to solve for P
| S
= P(1 + rt) |
- ------> |
P =_
S _ |
| |
|
(1+rt) |
- b) Convert r to a decimal
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- 8.25% ------> 0.0825
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- c) Use your formula
to solve for P
-
-
| P |
= |
_($ 5000.00)_ |
| |
|
[1 + (0.0825)(3)] |
| P |
= |
($ 5000.00) |
| |
|
( 1.2475 ) |
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-
- Shelly needs to invest
$4008.02 now so that she will have $5000.00 in three years.
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