Future Value: Meaning of Exponent
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We look at the formula to calculate the dollar amount of a $1 we put into savings today, we see that it is fv = pv*((1+i)^n). The variables are fv = future value, pv = present value, i = interest rate per period, and n = number of periods. In the formula, n is an exponent.
What does the exponent in this case tell us we need to do mathematically to the (1 + i) segment of the formula? Select a different interest rate (i) as well as a different number of periods (n). How much money would you have at the end if you invested $1 today (pv)?
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Solution Summary
A brief explanation of the meaning of the exponent in the future value calculation is presented in the solution along with an illustrated example.
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In the case of fv = pv*((1+i)^n), the exponent n indicates that (1+i) has to be raised to the power of n, i.e., mathematically, (1+i) should be ...
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