uture value Single Deposit aphic Assume that you deposit $1,000 at a compound interest rate of 7% for 2 years. 0 2 7% $1,000 FV. 2 3-11
3-11 Assume that you deposit $1,000 at a compound interest rate of 7% for 2 years. Future Value Single Deposit (Graphic) 0 1 2 $1,000 FV2 7%
uture value Single Deposit FV1=P0(1+)1 =$1,000(1.07) =$1,070 Compound Interest You earned $70 interest on your $1, 000 deposit over the first year This is the same interest you would earn under simple interest 3-12
3-12 FV1 = P0 (1+i) 1 = $1,000 (1.07) = $1,070 Compound Interest You earned $70 interest on your $1,000 deposit over the first year. This is the same interest you would earn under simple interest. Future Value Single Deposit (Formula)
uture value Single Deposit FOrmula) FV1=P0(1)1=$1,000(1.07) =$1,070 FV2=FV1(1+) =P0(1+)(1+)=$1,0001.07)(1.07) =P0(1+)2=$1,0001.07)2 =$1,14490 You earned an EXTrA $4. 90 in Year 2 with 3-13 compound over simple interest
3-13 FV1 = P0 (1+i) 1 = $1,000 (1.07) = $1,070 FV2 = FV1 (1+i) 1 = P0 (1+i)(1+i) = $1,000(1.07)(1.07) = P0 (1+i) 2 = $1,000(1.07) 2 = $1,144.90 You earned an EXTRA $4.90 in Year 2 with compound over simple interest. Future Value Single Deposit (Formula)
General Future Value Formula FV1=P0(1+) FV2=P0(1+)2 etc General Future value formula FVn=P0(1+) or FVn= Po(FVIFi)- See Table 3-14
3-14 FV1 = P0 (1+i) 1 FV2 = P0 (1+i) 2 General Future Value Formula: FVn = P0 (1+i) n or FVn = P0 (FVIFi,n ) -- See Table I General Future Value Formula etc
Valuation Using Table l FVIFin is found on Table I at End of book or on the card insert Period 6% 7% 8% 1.0601.0701.080 112411451.166 2345 1.1911.2251.260 1.2621.3111.360 1.3381.4031469 3-15
3-15 FVIFi,n is found on Table I at End of Book or on the Card Insert. Valuation Using Table I Period 6% 7% 8% 1 1.060 1.070 1.080 2 1.124 1.145 1.166 3 1.191 1.225 1.260 4 1.262 1.311 1.360 5 1.338 1.403 1.469