Question

Suppose that you invest $100 today in a risk-free investment and let the 6 percent annual interest rate compound. What will be the value of your investment 6 years from now?

Answer 1

Solution :

It is given that :

Amount of investment or the principle amount , P = $ 100

Time of investment , t = 6 years

Rate of interest compounded annually r = 6 %

Therefore the future amount of this investment in a 6 year time is given by,

$FV=P(1+\frac{r}{100})^t$

$FV=100(1+\frac{6}{100})^6$

$FV=100(1+0.06)^6$

$FV= 100 (1.4185)$

$FV=141$

Therefore, after 6 years the investment of $ 100 will give an amount of $ 141.