What is the future value of an investment if $25,000 is deposited at an annual interest rate of 5% for 10 years?

To determine the future value of an investment, we use the formula for compound interest, which is:

[

FV = P \times (1 + r)^n

]

where:

• ( FV ) is the future value of the investment,

• ( P ) is the principal amount (initial amount of money),

• ( r ) is the annual interest rate (as a decimal),

• ( n ) is the number of years the money is invested or borrowed.

In this scenario, the principal ( P ) is $25,000, the annual interest rate ( r ) is 0.05 (5% expressed as a decimal), and the number of years ( n ) is 10.

We plug these values into the formula:

[

FV = 25,000 \times (1 + 0.05)^{10}

]

Calculating ( (1 + 0.05)^{10} ):

[

(1.05)^{10} \approx 1.62889

]

Now, substituting this back into the future value formula gives:

[

FV \approx 25,000 \times 1.62889 \approx 40,