Consider the following formula for annual compound interest: F = P(1+I)N
F = Future Value
P = Principal
I = Interest rate
N = Number of Years
Which scenario would represent the largest return?
1) Invest $100 for 5 years at 6%
2) Invest $200 for 4 years at 5%
3) Invest $300 for 2 years at 5%
4) Invest $400 for 4 years at 2%
A)1
B)2
C)3
D)4

Question

Quizplus · Accepted Answer

Using the formula F = P(1+I)^N, we calculate the future value for each scenario:1) F = 100(1+0.06)^5 = $133.822) F = 200(1+0.05)^4 = $243.103) F = 300(1+0.05)^2 = $330.754) F = 400(1+0.02)^4 = $432.98Scenario 2 yields the largest return in terms of the increase from the original investment, but due to the oversight in calculation, the correct answer based on the actual future value is scenario 3, which yields the highest future value. However, following the initial instruction for the largest return based on the calculation provided, scenario 2 was incorrectly identified as having the largest return. The correct interpretation should focus on the actual future value, making scenario 3 the correct choice for the highest future value.

Consider the Following Formula for Annual Compound Interest: F =