The formula to calculate the value of $1 put into savings today is fv = pv*((1+i

Question

The formula to calculate the value of $1 put into savings today is fv = pv*((1+i)^n). The variables are fv = future value, pv = present value, i = interest rate per period, and n = the number of periods. In the formula, n is an exponent. What does the exponent in this case state that you need to do mathematically to the (1 + i) segment of the formula? Select an interest rate and number of periodsbe sure your numbers are different from other students who already answered this questionto calculate the future value of $1. How much money would you have at the end of the period you determined if you invested $1 today (pv)?

Explanation / Answer

FV = PV * (1+i)^n
the n represents the number of compounding to be done.
Exponent means (1+i) is raised to power i.e. it is mulplied so many number of times.

Consider interest rate = 12% and time =3 years
Here pv = $1, i = 12% =0.12 and n = 3

we get FV = 1* (1+0.12)^3
FV = 1 * 1.12^3 = 1 * 1.405 = $1.405

FV = $1.405 after 3 years at 12% rate of interest

So if we invested $1 today, at 12% rate we would have $1.405 at the end of 3 years.

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