Question

This morning, DJ’s invested $238,000 to help fund a company expansion project planned for three years from now. How much additional money will the firm have three years from now if it can earn 4 percent rather than 3.5 percent on its savings?

Answer 1

Answer:

$3,842.78

Explanation:

We must determine the future value of the money invested and then calculate the difference between both return rates. We can use the future value formula: FV = present value x (1 + return rate)ⁿ

3.5% ⇒ FV = $238,000 x (1 + 3.5%)³ = $238,000 x 1.035³ = $263,874.85

4% ⇒ FV = $238,000 x (1 + 4%)³ = $238,000 x 1.04³ = $267,717.63

difference = $267,717.63 - 263,874.85 = $3,842.78