Financial Algebra © Cengage Learning/South-Western 9/30/20149/30/2014 Warm-Up Sam deposits $4,000...

Financial Algebra© Cengage Learning/South-Western

9/30/20149/30/20149/30/20149/30/2014

Warm-UpSam deposits $4,000 into a CD that is continuously compounded. The CD pays 3.5% interest. How much money will Sam have after three years?

Slide 11

Financial Algebra© Cengage/South-Western Slide 22

3-7

FUTURE VALUE OF INVESTMENTS

3-7

FUTURE VALUE OF INVESTMENTS

Calculate the future value of a periodic deposit investment.

Graph the future value function.

Interpret the graph of the future value function.

OBJECTIVES

Financial Algebra© Cengage Learning/South-Western Slide 33

future value of a single deposit investment periodic investment biweekly future value of a periodic deposit investment

Key Terms


How can you effectively plan for the How can you effectively plan for the future balance in an account?future balance in an account?How can you effectively plan for the How can you effectively plan for the future balance in an account?future balance in an account?

How can you calculate what the value of a deposit will be after a certain amount of time?

If you want your balance to be a specific amount at the end of a period of time, how do you determine how much your initial deposit and subsequent deposits should be? Remember to consider the annual interest rate when

considering your answer.


Future Value of InvestmentFuture Value of InvestmentFuture Value of InvestmentFuture Value of Investment

What are some different ways we have discussed people investing money so far this year?

What are some different investment options we have discussed that are offered by banks?

Do you think people only invest one large value of money at once, or do you think they continue to save money throughout their life as well?

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People are interested in what the balance of their investment will grow to in the future – the future value of their investment

When people only invest money one time, they use the Compound interest formula

B = P (1 + ) nt

However, people usually continue to deposit money over and over again

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Periodic investments are the same deposits continuously made at regular intervals, such as yearly, monthly, biweekly, weekly, or even daily

Many people get paid biweekly, or every other week, and deposit money into a savings account each pay check

There are 26 biweekly paychecks in a year

Slide 77


Future value of a periodic deposit Future value of a periodic deposit investmentinvestmentFuture value of a periodic deposit Future value of a periodic deposit investmentinvestment

1 1nt

rP

nB

rn

B = balance at end of investment periodP = periodic deposit amountr = annual interest rate expressed as decimaln = number of times interest is compounded annuallyt = length of investment in years


Example 1Example 1Example 1Example 1

Rich and Laura are both 45 years old. They open an account at the Rhinebeck Savings Bank with the hope that it will gain enough interest by their retirement at the age of 65. They deposit $5,000 each year into an account that pays 4.5% interest, compounded annually. What is the account balance when Rich and Laura retire?


EXAMPLE 3EXAMPLE 3EXAMPLE 3EXAMPLE 3

Linda and Rob open an online savings account that has a 3.6% annual interest rate, compounded monthly. If they deposit $1,200 every month, how much will be in the account after 10 years?

Financial Algebra © Cengage Learning/South-Western 9/30/20149/30/2014 Warm-Up Sam deposits $4,000...

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