Multiple Choice
Which of the following changes would decrease the present value of a future payment?
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10. Time Value of Money
Time Value of Money Equations
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What is the future value of $500 deposited for one year at an annual interest rate of 8% compounded once per year?
A
$508.00
B
$540.00
C
$540
D
$540.80
Verified step by step guidance1
Understand the formula for future value (FV) when interest is compounded annually: 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.
Identify the values given in the problem: P = $500, r = 8% (convert to decimal as 0.08), and n = 1 year.
Substitute the values into the formula: FV = 500 × (1 + 0.08)^1.
Simplify the expression inside the parentheses: (1 + 0.08) = 1.08.
Multiply the principal amount by the simplified value: FV = 500 × 1.08.
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