Essay: Future Value of an Investment

Sample Essay

The future value of an investment can be calculated by using the following formula (Brigham & Ehrhardt, 2001).

FV = PV (1+i) ⁿ

This formula is applicable to calculation of future value when the compounding period is annual but if the compounding period is different the formula is amended as follows.

For monthly compounding FV = PV (1+i/12) ^{n x 12}

The future value of certificate of deposit can be calculated by using the above formula.

FV = 4000 (1 + 0.005)⁶

FV = $4121.51

The future value for the CD is $4121.51

B.

Amount Invested = $4,000

Future Value = $4121.51

Interest earned = $121.51

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