Question

Suppose a relative has promised to give you $1,000 as a wedding gift the day you get engaged. assuming a constant interest rate of 10%, consider the present and future values of this gift, depending on when you become engaged.

Answer 1

If this 1,000$ was put into any type of account that got 10 percent interests would mean that it would gain 100 dollars every year. Determining how long you were engaged; the account could be up to 1,100$ after one year or 1,400$ after four years.

Answer 2

The value of the gift in one year = $1100

The value of the gift in two years = $1200

Future explanation

When we save money in a bank, we get interest, so our money increases.

There are two types of flowers, i.e.

• 1. a single interest

if the only interest is the capital

• 2. compound interest

if interest is earned on the interest.

Bank interest is usually calculated in percent for 1 year.

For example, 10% interest, then our savings will get 10% interest if we have saved money in the bank for 1 year

Common formulas that can be used:

• 1. 1-year interest =% interest x capital

• 2. interest for x month = $\frac{x}{12}$ x % interest x capital

   = $\frac{x}{12}$ x 1- year interest

The value of the gift in one and two years if you become engaged today

• 1. one year:

= capital + interest 1 year

= 1000 + 1000 x 10%

= 1000 + 100

= $1100

• 2. two years:

= capital + interest 2 years

= capital + 1000 x 20%

= 1000 + 200

= $1200

So The future value of the gift is bigger if you get engaged in one year than it is if you get engaged in two years.

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Keywords: interest, capital, savings, bank, engaged