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

Question

BlackTom AI · Accepted Answer

The problem asks for the amount received after five years on an initial investment of $100 with an annual interest rate of 5%.

Option 1: $95.24. This value would imply a loss or a negative growth, which would occur if the interest were negative or if a depreciation occurred. It does not match a positive 5% annual growth scenario.

Option 2: $100.00. This would be the present value with no interest earned at all. It ignores the compounding effect and does not reflect earning interest over five years.

Option 3: $105.00. This suggests a simple interest approach where interest is calculated only on the principal each year, or a 5% return each year without compounding. However, five years of 5% simple interest on $100 would yield $25 total interest, not $5, so this is too low for a compounded scenario.

Option 4: $125.00. This figure roughly corresponds to partial compounding or an interpretation missing one period of growth. If compounded annually, the fifth power would exceed this amount.

Option 5: $127.63. This matches the correct compounded-annual-growth calculation: Future Value = 100 × (1 + 0.05)^5 = 100 × 1.2762815 ≈ 127.63. The result reflects five years of 5% growth with compounding.

In summary, the only value that accurately accounts for five years of 5% annual compounding on a $100 principal is $127.63, while the other figures arise from incorrect assumptions about interest (negative growth, no interest, simple interest, or incomplete compounding).

2025Fall-ECN3615-01 Final Exam Practice Quiz

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

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2025Fall-ECN3615-01 Final Exam Practice Quiz

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

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?

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

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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?

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If you deposit $1'000 in a savings account that pays 4% compounded annually , compute the future value of your account after 4 years.

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