Suppose that you invest $100 today in a risk-free investment and let the 6 percent annual interest rate compound. What will be the value of your investment 6 years from now?Instructions: Round your answer to the nearest dollar.$
Solution
To calculate the future value of an investment with compound interest, you can use the formula:
FV = PV * (1 + r/n)^(nt)
where: FV = Future Value PV = Present Value r = annual interest rate (in decimal form) n = number of times that interest is compounded per year t = time the money is invested for in years
In this case, you're investing $100 (PV) at an annual interest rate of 6% (r = 0.06), compounded annually (n = 1), for 6 years (t = 6).
So, the calculation would be:
FV = 100 * (1 + 0.06/1)^(1*6)
Solving this gives:
FV = 100 * (1.06)^6 FV = 100 * 1.4185
Rounding to the nearest dollar, the future value of your investment would be approximately $142.
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