Given below are the future value factors for 1 at 8% for one to five periods. Each of the items 48 to 51 is based on 8% interest compounded annually.

-If $4,000 is put in a savings account today, what amount will be available six years from now?
A)$4,000 × 1.080 × 6
B)$4,000 × 1.080 × 1.469
C)$4,000 × 1.166 × 3
D)$4,000 × 1.260 × 2

Question

Given below are the future value factors for 1 at 8% for one to five periods. Each of the items 48 to 51 is based on 8% interest compounded annually.

-If $4,000 is put in a savings account today, what amount will be available six years from now?
A)$4,000 × 1.080 × 6 
B)$4,000 × 1.080 × 1.469 
C)$4,000 × 1.166 × 3 
D)$4,000 × 1.260 × 2

Quizplus · Accepted Answer

This problem involves compound interest. We use the formula $A=P(1+r)^n$, where $A$ is the amount after $n$ years, $P$ is the principal (initial amount invested), and $r$ is the interest rate (expressed as a decimal). We are not given the interest rate, but we are told that the amount will be available six years from now, so we need to use the formula for six years of compound interest. We can eliminate choices A and D because they involve multiplying by a factor of 6 or 2, respectively, without considering interest. Choice C involves multiplying by a factor of 3, so it is not taking into account six years of interest. Choice B involves multiplying by a factor of 1.080 (which is equivalent to adding 8% interest), and then multiplying by 1.469 (which is equivalent to adding another 46.9% interest). This combination of interest over six years gives the correct answer: $4000 \cdot 1.080 \cdot 1.469 = 6{,}332.80$.

Given Below Are the Future Value Factors for 1 at 8