Given a present value of \$1,000, an annual interest rate of 6\% compounded annually, and a time period of 3 years, what is the future value (FV) using the time value of money equation?

• A. \$1,200.00
• B. \$1,191.02
• C. \$1,060.00
• D. \$1,180.00

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the formula for calculating Future Value (FV) using the time value of money equation. The formula is: FV = PV × (1 + r)^n, where PV is the present value, r is the annual interest rate (expressed as a decimal), and n is the number of years.
2. Step 2: Convert the annual interest rate from a percentage to a decimal. For a 6% interest rate, divide 6 by 100 to get r = 0.06.
3. Step 3: Identify the values given in the problem: PV = \$1,000, r = 0.06, and n = 3 years.
4. Step 4: Substitute the values into the formula: FV = 1000 × (1 + 0.06)^3. Use the exponentiation operation to calculate (1 + 0.06)^3.
5. Step 5: Multiply the result of (1 + 0.06)^3 by the present value (PV = \$1,000) to find the future value (FV).