problem: compound interest problem 2
example: Mr Smith invests € 8 000,- at an interest rate of 5% for six years.
question: How much is his capital including compound interest after six years?
answer: compound interest problem 2
1. step: given/wanted
present value (pv) = € 8 000,-
annual interest rate (r) = 5%
number of periods (n) = 6 years
future value (fv) = capital including compound interest after 6 years?
2. step: calculate
future value = fv
present value = pv
r = annual rate
n = number of periods
fv = pv • (1 + r)n
fv = 8 000 • (1 + 0,05)6
fv = € 10 720,77
3. step: answer
After six years he will receive € 10 720,77.