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4 example jane farber places 800 in a savings account

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Unformatted text preview: avings account paying 6% interest compounded annually. She wants to know how much money will be in the account at the end of 5 years. Substituting PV $800, i 0.06, and n 5 into Equation 4.4 gives the amount at the end of year 5. FV5 $800 (1 0.06)5 $800 (1.338) $1,070.40 This analysis can be depicted on a time line as follows: Time line for future value of a single amount ($800 initial principal, earning 6%, at the end of 5 years) FV5 = $1,070.40 PV = $800 0 1 2 3 4 5 End of Year Using Computational Tools to Find Future Value future value interest factor The multiplier used to calculate, at a specified interest rate, the future value of a present amount as of a given time. Solving the equation in the preceding example involves raising 1.06 to the fifth power. Using a future value interest table or a financial calculator or a computer and spreadsheet greatly simplifies the calculation. A table that provides values for (1 i)n in Equation 4.4 is included near the back of the book in Appendix Table A...
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