CK-12-Pre-Calculus Concepts

http://www.ck12.org Chapter 13. Finance

PV=$1, 000

t= 18 years

i= 0. 05

FV=unknown so you will usex

Then substitute the values into the formula and solve to find the future value.

FV=PV( 1 +t·i)

x= 1 , 000 ( 1 + 18 · 0. 05 )

x= 1 , 000 ( 1 + 0. 90 )

x= 1 , 000 ( 1. 9 )

x= 1 , 900

Linda initially had $1,000, but 18 years later with the effect of 5% simple interest, that money grew to $1,900.
Example B
Tory put $200 into a bank account that earns 8% simple interest. How much interest does Tory earn each year and
how much does she have at the end of 4 years?
Solution: First you will focus on the first year and identify known and unknown quantities.

PV=$200

t= 1 year

i= 0. 08

FV=unknown so we will usex

Second, you will substitute the values into the formula and solve to find the future value.

FV=PV( 1 +t·i)

FV= 200 ( 1 + 1 · 0. 08 )

FV= 200 · 1. 08

FV= 216

The third thing you need to do is interpret and organize the information. Tory had $200 to start with and then at the
end of one year she had $216. The additional $16 is interest she has earned that year. Since the account is simple
interest, she will keep earning $16 dollars every year because her principal remains at $200. The $16 of interest
earned that first year just sits there earning no interest of its own for the following three years.

TABLE13.1:

Year Principal at Beginning of

Year

Interest Earned that Year Total Interest Earned

1 200 200 ×. 08 = 16 16

2 200 16 32

3 200 16 48