Suppose you have $2,000 and plan to purchase a 10-year certificate of deposit (CD) that pays 6.5% interest, compounded annually. How much will you have when the CD matures?

The future value of the investment will be $3,754

Explanation:

Future Value of Investment

Suppose we have a principal P invested for a period of n years at an interest rate i compounded annually. The final value or future value FV of the investment can be computed by:

The case we are considering consists of a present value P=2,000 that will be used to purchase a n = 10-year certificate of deposit (CD). It pays i=6.5% interest. When the CD matures, 10 years from now its value will be

The future value of the investment will be $3,754

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