Multiple Choice
Why is compound interest generally more advantageous than simple interest when investing money over time?
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10. Time Value of Money
Time Value of Money Equations
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If you invest \$823 at an annual interest rate of 3\% compounded annually for 5 years, what will be the future value of your investment? (Use the formula: \( FV = PV \times (1 + r)^n \))
A
\$954.23
B
\$890.00
C
\$845.69
D
\$950.00
Verified step by step guidance1
Identify the given values: Present Value (PV) = 823, annual interest rate (r) = 3% or 0.03, and the number of years (n) = 5.
Write down the formula for future value (FV): FV = PV × (1 + r)^n.
Substitute the given values into the formula: FV = 823 × (1 + 0.03)^5.
Simplify the expression inside the parentheses: (1 + 0.03) = 1.03.
Raise 1.03 to the power of 5 and multiply the result by 823 to calculate the future value.
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