The future value of $500 saved for two years at an interest rate of 5% is
A)$550.25.
B)$550.00.
C)$551.25.
D)None of the above are correct.

Question

Quizplus · Accepted Answer

The formula for future value with compounded interest is:

FV = PV*(1+r)^n

Where: 
PV = Present Value ($500 in this case)
r = interest rate per period (5% per year, so 2.5% per 6-month period)
n= number of periods (2 years, so 4 6-month periods)

Plugging in the values: 
FV = 500*(1+0.025)^4 
FV = $551.25

Therefore, the answer is C, $551.25.

The Future Value of $500 Saved for Two Years at an Interest