Question

You want to deposit $12,000 in a bank at an interest rate of 8 percent per year. What is the future value of this money after five years?

Answer 1

12,000×(1.08)^5 and a calculator

Answer 2

The correct answer is: "$17,631.937"

If a certain amount of money wants to be expressed in money units of five years from now, 'the Future Value Formula' needs to be applied:

Future value= PV * (1 + i) ⁿ , where

• PV = present value of the money deposited
• i = interest rate
• n = number of periods that the money is deposited

FV = $12,000 * (1 + 0.08)^5=  $17,631.937