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# Calculating future values and rates of return

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1. If you deposited \$250 in your savings account today, and the bank pays 4 percent interest per year, how much would you have in your savings account after 9 years?
- Recalculate the account balance using a 6 percent interest rate and a 7 percent interest rate.

2. A \$450 deposit earns 6 percent interest in the first year, 3 percent interest in the second year, and 7 percent interest in the third year. What is the future value at the end of the third year?

3.What is the annual rate of return for an \$8,000 investment if in five years it grows to \$12,500?
- Assuming the growth occurred in six years and then eight years, recalculate the rate of return for these two scenarios.

#### Solution Preview

1. If you deposited \$250 in your savings account today, and the bank pays 4 percent interest per year, how much would you have in your savings account after 9 years?
Present value of deposit=PV=\$250
Number of periods=n=9 years
Interest rate=r=4%
Future Value of deposit=FV=PV*(1+r)^n=250*(1+4%)^9=\$355.83

- Recalculate the account balance using a 6 percent interest rate and a 7 percent ...

#### Solution Summary

The solution depicts the steps to calculate future value in the given scenarios. It also explains the methodology to calculate the annual rate of return. Calculations are carried out with the help of suitable formulas.

\$2.19