Personal Finance 1st Edition by Jack R. Kapoor

Exercise 26

Computing the Time Value of Money for Savings. Use future value and present value calculations (see Chapter 1 appendix) to determine the following.

a. The future value of a $400 savings deposit after eight years at an annual interest rate of 3 percent.

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b. The future value of saving $11,800 a year for five years at an annual interest rate of 4 percent.

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c. The present value of a $6,000 savings account that will earn 3 percent interest for four years.

Step 1 of 4

Future value is the value of the amount at the end of certain period.

Future value can be calculated using the following equation:

Here,

Calculate the future value of the amount of savings after eight years by substituting $400 for PV and 1.267 for future value factor:

Therefore, future value of the amount of savings ($400) after eight years is .

Note: The applicable interest rate is 3%.