Question

Find the future value of each deposit if the account pays​ (a) simple​ interest, and​ (b) interest compounded annually.
​$500 at 3​% for 6 years

Answer 1

(a) If the account pays simple interest, the future value of each deposit can be calculated using the formula:

FV = P (1 + r * t)

Where:
FV = Future Value
P = Principal amount (initial deposit)
r = Interest rate
t = Number of years

In this case, P = $500, r = 3% = 0.03, and t = 6.

FV = $500 * (1 + 0.03 * 6)
= $500 * (1 + 0.18)
= $500 * 1.18
= $590

Therefore, the future value of each deposit if the account pays simple interest would be $590.

(b) If the interest is compounded annually, the future value can be calculated using the formula:

FV = P (1 + r)^n

Where:
FV = Future Value
P = Principal amount (initial deposit)
r = Interest rate
n = Number of compounding periods

In this case, P = $500, r = 3% = 0.03, and n = 6.

FV = $500 * (1 + 0.03)^6
= $500 * (1.03)^6
= $500 * 1.191016
= $595.51

Therefore, the future value of each deposit if the account pays interest compounded annually would be approximately $595.51.