Question

If you invest $2,000 today for three years at 5% interest paid annually, you will earn a total of $______ in interest. Assume you re-invest all interest.
A. 205.00
B. 300.00
C. 315.25
D. 500.00

Answer 1

Answer:

Option (C) is correct.

Explanation:

Given that,

Amount invested today = $2,000

Interest paid annually(r) = 5%

Time period(n) = 3 years

$Future\ value=Present\ value\times(1+r)^{n}$

$Future\ value=2,000\times(1+0.05)^{3}$

$Future\ value=2,000\times(1.05)^{3}$

                            = $2,315.25

Therefore,

Total amount earn:

= Future value - Present value

= $2,315.25 - $2,000

= $315.25