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Dear Tutor
i need help on the formula F= P(1+r)n
Test your understanding 1 in chapter 3
Q. you have $5000 to invest now for six years at an interest rate of 5% pa.applying the formula F= P(1+r)n
F=$5000 (1+0.05)6
=$5000x 1.3401
= $6700Thats the answer in the text book for test you understanding question 1.
What i dont understand is how do you get F=$5000 (1+0.05)6
=$5000x 1.3401i get $5000x 6.3????
Hi there –
I have just done this question tonight too 🙂Ok lets see if I can help:
breaking it down:
5000 x (1+0.05) to the power 6:
1.05 to power 6 is 1.34 x 5000 = 6700.47
(Effectively it is 1.05 x 1.05 x 1.05 x 1.05 x 1.05 x 1.05 – but we wont have time to do that in the exam!)
marky 123 is correct. You have misread the formula (or it is typed badly in your book). It is not P(1+r)n, it is P(1+r)^n (i.e. to the power n)
Also, you really should have a scientific calculator for this exam, in which case something to the power n is easy.
However, even without a scientific calculator it can be quick.
Instead of doing 1.05 x 1.05 x 1.05 etc., with most calculators all you need to is:enter 1.05, then hit the ‘x’ key twice, then hit the ‘=’ key 5 times 🙂
(only 5 times – the first time is ^2, the second time is ^3, and so on)
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