You Try It
Now it's your turn. Practice with our scenarios from earlier. We'll start with Here Comes the Bride… (or Groom!)
This Is Your Life: Here Comes the Bride… (or Groom!)
|You've been working for quite some time and have saved $5,000. It took you so long to earn that money, you'd like to keep from spending it and deposit it in the bank until you get married. You figure that is probably about 15 years down the road. If your bank is paying 4% interest, how much will $5,000 be in 15 years?|
Using the calculator (click the button above; you can move the calculator around the screen), choose the future value formula from the dropdown menu (it's first in the list). Input the appropriate values into the formula. To perform the calculation, click Calculate. Click here to compare your answer to ours.
Your answer should be $9,004.71. Here are the values you should have used for each variable:
- PV=$5,000. This is the amount of money we are starting off with that will be earning interest.
- i=0.04. This is our interest rate.
- n=15. This is the number of years we plan to save.
If you didn't put in the correct values the first time, try it again.
This Is Your Life: You're In the Money…
Your grandmother is impressed by your tremendous success in high school and, upon your graduation, gives you $10,000! You know what the current value is… it's $10,000 and you could purchase $10,000 worth of stuff right now. An alternative could be that you save the $10,000. Let's say you save it at 4% interest. The question is, how much stuff would that get you in 20 years, 30 years, or 40 years? What is the future value of $10,000?
Complete the calculation three times; once using 20 years, once using 30 years, and once using 40 years. As you complete each calculation, key in your answers in the fields below. Once you've completed all the calculations, compare your answers to ours.
Don't use our calculator! That's right. If you'd like, try performing the calculations on your own with a calculator. You'll need a scientific calculator or use the one on your computer if one is available. If you don't have a calculator available, just let ours do the computation.
|Question||Your Answer||Compare to Ours|
|What is the future value of $10,000 in 20 years?||
|What is the future value of $10,000 in 30 years?||
|What is the future value of $10,000 in 40 years?||
You know that money loses its purchasing power over time—but the compound interest paid helps the money grow and is likely to surpass the effects of inflation. And that's a good thing! However, even if the interest you earn exactly matches the loss in purchasing power caused by inflation, remember that some money (even if it has less buying power) is better than no money at all!
Changes in Interest, Changes in Value
Use the $10,000 scenario a few times, entering different interest rates. This will help you see how small changes in interest can lead to big changes in the future value of your money. If you'd like, practice with different time frames as well, seeing how time will enhance your savings. With this gift from your grandma, you've got a good start to acquiring things you might only have dreamed of.
For comparison, we tried a few different values as well. If you'd like to compare your results to ours, click here. Keep in mind that if you do the calculations correctly, your answers may only be similar to ours and not exactly the same. This is because we may have rounded values differently. Regardless, the answers should be very close if you replace the variables with the correct values.
|Present Value||Interest Rate||Years||Future Value|
FV= (1 + )
Enter your variable into the fields above and click Calculate to solve.