Question

Suppose that you invest $100 today in a risk-free investment and let the 5 percent annual interest rate compound. Rounded to full dollars, what will be the value of your investment 6 years from now?

Answer 1

After one year, you'll have 100 * 1.05. After another year, you'll have 100 * 1.05 * 1.05. After six years, you'll have 100 * 1.05 * 1.05 * 1.05 * 1.05 * 1.05 * 1.05. You can write that more simply as \(100 \cdot 1.05^6\).

Answer 2

Total = Principal(1+interest/compound)^(compound*time)