Multiple Choice
What is the formula to calculate the monthly payment (PMT) on a 20-year loan with principal amount \(P\), annual interest rate \(r\) (compounded monthly), and total number of monthly payments \(n\)?
10. Time Value of Money
Time Value of Money Equations
Multiple Choice
What is the future value of \$11 invested for 3 years at an annual interest rate of 5\% compounded annually?
A
\$12.76
B
\$13.00
C
\$11.55
D
\$12.10
Verified step by step guidance1
Step 1: Understand the formula for future value (FV) when interest is compounded annually. The formula is: FV = P × (1 + r)^n, where P is the principal amount, r is the annual interest rate (in decimal form), and n is the number of years.
Step 2: Identify the values given in the problem. Here, P = \$11, r = 5% (convert to decimal: 0.05), and n = 3 years.
Step 3: Substitute the values into the formula. Using MathML, the formula becomes:
Step 4: Perform the operations step by step. First, calculate (1 + r), then raise the result to the power of n, and finally multiply by P.
Step 5: Compare the calculated future value to the provided answer choices (\$12.76, \$13.00, \$11.55, \$12.10) to determine the correct answer.
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