I want to be able to buy a car with cash in 3 years. I have $10,000 that I can invest today. I can get a bond earning 2%. How much will I have for the purchase?
You will have 10,851.67 dollars.
FV = PV * [1 + R]^N
FV = 10,000 * [1 + 0.02]^3
FV = 10,000 * 1.02^3
FV = 10,000 * 1.061208
FV =$ 10,612.08 - this is what you will have in 3 years at 2% compounded annually.
OR:
FV =10,000 * 0.02 * 3 years =$10,600 - this is what you will have in years at 2% SIMPLE interest.
