Future Value and Compound Interest

Paul Barosky from Tutor for Finance explains how to calculate the future value of an investment. Using an example of investing $1,000 at an 8% interest rate for six years, he demonstrates the formula: Future Value (FV) = Present Value (PV) * (1 + R)^N. He walks through substituting values into the formula and performing calculations using the order of operations. The final result shows that the investment will grow to $1,586.74 after six years.

What is the initial amount we are investing in this example?

• $500

• $1,000

• $2,000

• $1,500

What is the interest rate used in the example?

• 5%

• 6%

• 10%

• 8%

How many years is the investment period in this example?

• 4 years

• 5 years

• 6 years

• 7 years

What does 'FV' stand for in the future value formula?

• Financial Value

• Future Value

• Final Value

• Fixed Value

In the formula, what does 'PV' represent?

• Potential Value

• Present Value

• Projected Value

• Past Value

How is the interest rate expressed in the formula?

• As a whole number

• As a fraction

• As a decimal

• As a percentage

What is the first step in the order of operations for this calculation?

• Raise to the power of years

• Add the interest rate

• Subtract the initial amount

• Multiply the present value

What is the result of adding 1 to the interest rate in decimal form?

• 1.06

• 1.09

• 1.07

• 1.08

What is the next step after calculating inside the parentheses?

• Subtract the initial amount

• Add the interest rate

• Raise to the power of 6

• Multiply by the present value

What is the value of 1.08 raised to the 6th power?

• 1.6869

• 1.8869

• 1.7869

• 1.5869