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?

查看解析

登录即可查看完整答案

类似问题

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?

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

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

更多留学生实用工具

希望你的学习变得更简单

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