Mary just deposited $33,000 in an account paying 10% interest. She plans to leave the money in this account?

Question

for seven years. How much will she have in the account at the end of the seventh year?

Formula: FV = PV (1 + i )^

Show all work and explain each step carefully! Thank you.

Answer 1

You can baffle and amaze your teacher with this answer:

"There isn't enough information in the question to provide an accurate answer! How often is the interest compounded? Is this simple interest or compound interest?

If 10% interest is added at the end of each year, then you get one answer. (about $58,000) If, however, the interest is compounded DAILY, (ie 1/365 of 10% is earned on the balance every day), you get a much larger number, because you are earning interest on the interest as well as the original sum."

Answer 2

This is a very basic question and i will show you the effective way to solve it. in order to get through these "time value of money" questions, it is best to use a financial calculator.

Since there is no additional with respect to the interest rate compounding periods we will assume the interest rate is compounded annually. (therefore effective rate = apr = 10%)

follow these steps with the financial calculator:

PV = -33,000

I = 10

N = 7

PMT = 0

CPT FV = 64,307.6643 (the answer)