Let's calculate how much will the $1,000 will be worth after earning 5% interest in two years.
Remember that to calculate the future value we use the formula:
[tex]FV=P(1+r)^n[/tex]Where:
• FV, is the future value
,• P, is the initial amount invested
,• r, is the interest rate
,• n, is the number of years
Using the data we have, we'll get:
[tex]FV=1000(1+\frac{5}{100})^2=1102.5[/tex]Thereby, we can conclude that it would be better to take the $1,000 now and invest the money at a 5% interest rate for two years rather than getting $1,100 in two years time.
