Question

Which of the following is the correct way to compute the future value of $1 put into an account that earns 5 percent interest for 16 years?Select one:
a. $1(1 + .05)^16b. $1(1 + .05 16) 16c. $1(1 + .05 16)d. $1(1 + 16/.05)^16

Answer 1

Answer:

a. $1(1 + .05)^16

Explanation:

The discounting of an amount today at an interest rate for a specific period of time is given by

A = P(1 + r)^n

where

A = Future amount

P = present amount

r = rate in percent

n = time

Therefore, the future value of $1 put into an account that earns 5 percent interest for 16 years

= $1(1 + 0.05)^16

As P = $1, r = 5% and n = 16. Option a.