23 July, 06:09

# Suppose you invest a sum of \$ 1500 in an interest-bearing account at the rate of 12 % per year. What will the investment be worth six years from now? (Round your answer to the nearest whole dollar.) In six years the investment will be worth \$.

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1. 23 July, 07:44
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In six years the investment will be worth \$4421

Explanation:

The investment of \$1500 will receive interest payment at 12% p. a. The interest payments are like an annuity as the amount is fixed and is paid after equal intervals and for a definite period i. e. 6 periods.

To calculate the worth of investment 6 years from now, we need to calculate the future value of both the principal and interest annuity after 6 years.

The formula for future value of principal is = PV * (1+r) ^t

Future value of principal = 1500 * (1+0.12) ^6 = \$2960.73

The formula for future value of annuity is given is:

FV of ordinary annuity = PMT * [ ((1+i) ^t - 1) / i]

Where, PMT is the periodic interest payment. The interest payment is = 1500 * 0.12 = \$180 per year

Future value of annuity = 180 * [ ((1+0.12) ^6 - 1) / 0.12]

Future value of annuity = \$1460.73

The total value of investment = 2960.73 + 1460.73 = \$4421.46 rounded off to \$4421