Calculate the future value of $1,000 invested for 10 years at 6% interest.

Compounded annually: 1,000 (1 + 0.06)^10 = $1,790.85

Compounded semiannually (2 x 10): 1,000 (1 + 0.06)^20 = $3,207.14

Compounded quarterly (4 x 10): 1,000 (1 + 0.06)^40 = $10,285.72

Compounded monthly (12 x 10): 1,000 (1 + 0.06)^120 = $1,088,187.75

1. Using the example from above, why does the future value increase with the number of compounding periods?

2. You presently have $20,000 in student loans at 6% interest for the year, compounded monthly. You will graduate in 9 months (0.75 periods). How much will you owe when you graduate? You may want to use this calculator since were dealing with less than one year period.

3. You plan to buy a house in 5 years. To this end you have started by saving $4,000 in an account that pays 8% interest compounded yearly. What will be the value of your account at the end of 5 years?

4. If you buy a basket of products today that costs $100.00, how much will it cost in 10 years, assuming 3% rate of inflation annually?

5. Youve been working for 30 years, and its about time to retire. 30 years ago you invested $500 that grew at 9% interest compounded yearly. How much total would you have if you worked another 1 year? How does that value compare to if you had stopped growing interest and took the funds 5 years ago?