Question

Hank invested $50,000 in a mutual fund that earns 7% interest compounded annually. How much interest did he earn after 10 years?

Answer 1

9514 1404 393

Answer:

  G)  $48,357.57

Step-by-step explanation:

The future value formula can be used to find the account value:

  FV = P(1 +r)^t

where P is invested at annual rate r for t years.

  FV = $50,000(1.07^10) ≈ $98,357.57

The amount of interest earned is the difference between this value and the value of the initial investment:

  interest = $98,357.57 -50,000 = $48,357.57

Hank earned $48,357.57 in interest after 10 years.

_____

At 7% interest, the "rule of 72" tells you the doubling time of the account is about 72/7 = 10.3 years. That is the account value will be not quite double the original investment after 10 years. So, the amount of interest earned is only slightly less than $50,000. If the account earned simple interest, the interest earned would be $35,000. Only one answer choice is more than $35,000 and less than $50,000.

Answer 2

Answer:

F $35,000

Step-by-step explanation:

3,500 is 7% of 50,000 3500 multiplied by 10 years= 35,000