General 2 HSC Credit and Borrowing - Future Value

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General Maths 2 -FM 4 Credit and Borrowing
Future Value of an Investment (Annuity)

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General 2 HSC Credit and Borrowing - Future Value

  1. 1. Future Value of an Investment
  2. 2. Future Value Formula A = P(1+ r) n FV = PV (1+ r) n With compound interest you earn interest on your interest
  3. 3. Example 1 Calculate the future value of an investment of $4000 at 5.5%p.a compounding annually for 7 years. FV = PV (1+ r) PV = $4000 r = 0.055 n n=7 FV = 4000(1+ 0.055) = $5818.72 7 the future value of the investment is $5818.72
  4. 4. Example 2 Calculate the future value of an investment of $4000 at 5.5%p.a compounding monthly for 7 years. FV = PV (1+ r) PV = $4000 n 0.055 r= = 0.004583 12 n = 7 × 12 = 84 FV = 4000(1+ 0.004583) = $5873.29 84 the future value of the investment is $5873.29 WHY is this different to Example 1?
  5. 5. Example 3 of an annuity that has a future Calculate the present value value of $11375 after 5 years at 6%p.a Answer to the nearest dollar FV = PV (1+ r) FV ∴ PV = n (1+ r) FV = $11375 n r = 0.06 n=5 11375 PV = 5 (1+ 0.06) = $8500 the present value of the annuity is $8500

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