## Future Value Example

Prepared by Pamela Peterson

### Problem

Suppose you are depositing an $5,000 today in an account that earns 5%
interest, compounded annually. What will be the balance in the account at
the end of six years if you make no withdrawals?
### Solution

The following information is given:

- present value = $5,000
- interest rate = 5%
- number of periods = 6

We want to solve for the future value.

future value = present value (1 + interest rate)^{number of
periods}
or, using notation

FV = PV (1 + r)^{t}
Inserting the known information,

FV = $5,000 (1 + 0.05)^{6}

FV = $5,000 (1.3401)

FV = __$6,701__

We can use the future value table (also known as the table of compound
factors) to solve
for the future value.

FV = PV (compound factor for r and t)
The compound factor, from the table, is
1.3401. Therefore,

FV = $5,000 (1.3401)

FV = __$6,701__