Present and Future Value Example 1


Uploaded by TheIntegralCALC on 23.08.2010

Transcript:
Hi everyone! Welcome back to integral calc.com. We're going to be doing another future value
problem today. This one involves this future value formula here.
And the reason that it involves this formula instead of PV e to the rt is because,
we are not compounding our interests continually or compounding at certain number of times
per year. So we use this formula instead of that continuously compounded formula.
So this question asks us to find the future value of $5000. And because it’s asking
us to find future value of a certain amount of money, we have future value here in the
left by itself. We’re finding the value of $5000, so that is our present value. We
leave the 1. Future value of $5000 after 4 years, so t is 4, take t for time is 4.
After 4 years, an annual interest rate of 6%, so the interest rate, r is 6%, which
is 0.6 and we are compounding monthly so n represents number of times per year the interest is compounded.
Since we're compounding monthly, n will be equals 12. So we have 12 in both places
here. And once we've plugged in our values, all
we need to do is simplify. So the way that we do that, I can simplify a little bit for
you here but you can just do it in your calculator. So 5000, we end up with 1 plus 0.005 and this
would be 48. So if you want to simplify ahead of time by
plugging in to your calculator, you can do this on paper pretty easily. So once you get
here, you plug these values into your calculator and your future value ends up being $6,352.45.
So that's the future value of $5,000 after 4 years at the rate of 6% with interest compounded
monthly. So hope that helps. See you guys next time. Bye!