Suppose you put $100 into a savings account with a guaranteed interest rate of 2% per year. You don’t make any further payments into this account, you don’t withdraw any money, and the bank does not charge you any fees. How much would be in the account at the end of five years?

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BlackTom AI · Accepted Answer

Here's the setup: you start with $100, earn 2% interest per year, compounded annually, for 5 years. The future value after n years with annual compounding is: Principal × (1 + r)^n. So the amount after 5 years is 100 × (1.02)^5.

Compute (1.02)^5: (1.02)^2 = 1.0404, (1.02)^3 ≈ 1.061208, (1.02)^4 ≈ 1.08243216, (1.02)^5 ≈ 1.1040804032. Multiplying by 100 gives ≈ $110.408.

Thus, the ending balance is about $110.41, which is indeed more than $110. Since the question’s only provided option states 'More than $110,' this statement aligns with the calculated result.

A common misconception would be to think the amount is exactly $110 after five years, but compounding adds a little more than simple interest. Another misconception would be assuming no interest accrues over time or that the amount cannot exceed the simple estimate; both are incorrect because the 2% rate compounds each year, increasing the total beyond 100 × (1.02)^5.

MGT 012Y 001 SQ 2025 Week 1 HW - FINRA Assessment

Suppose you put $100 into a savings account with a guaranteed interest rate of 2% per year. You don’t make any further payments into this account, you don’t withdraw any money, and the bank does not charge you any fees. How much would be in the account at the end of five years?

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MGT 012Y 001 SQ 2025 Week 1 HW - FINRA Assessment

Suppose you put $100 into a savings account with a guaranteed interest rate of 2% per year. You don’t make any further payments into this account, you don’t withdraw any money, and the bank does not charge you any fees. How much would be in the account at the end of five years?

View Explanation

Log in for full answers

Similar Questions

Part 1Consider a twominus−year ​investment: Given a constant and positive interest​ rate, the interest earned in the second year will be greater than the interest earned in the first year​ (assuming annual​ compounding). Part 1 True False

If Jack and Jill deposit $1,000 into a savings account that earns 4.5% annual interest (compounded monthly), how long will it take for their money to double to $2,000?

How much will you get back on a five year investment of $100 that pays 5% interest per year?

What is the effective yield (APY) if the Annual Percentage Rate (APR) is 7.64 percent and it is compounded quarterly?

If you deposit $10,000 in an account with an annual rate of 9% compounded semiannually, how long will it take for you to have $2,000,000 in the account?

In order to determine the future value of some lump sum, we must use the process of ________.

With compound interest, the investor earns interest on the principal amount invested plus interest on accumulated interest. Which of the following compounding frequencies would yield the investor the greatest ending balance assuming all else is equal?

You have located an investment that pays 9 percent per year. You invest $800. How much will you have in seven years? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.Blank.xlsx

More Practical Tools for Students Powered by AI Study Helper

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Part 1Consider a twominus−year investment: Given a constant and positive interest rate, the interest earned in the second year will be greater than the interest earned in the first year (assuming annual compounding). Part 1 True False