A $200 deposit today that earns an annual interest rate of 5% is worth how much at the end of two years? Assume all interest received at the end of the first year is reinvested the second year.
A)$181.41
B)$220.00
C)$220.50
D)$242

Question

Quizplus · Accepted Answer

At the end of the first year, the deposit will have earned interest of 200 * 0.05 = $10. This brings the value of the account to $210. This entire amount is then reinvested at 5% interest for the second year, resulting in an end value of 210 * 1.05 = $220.50. Thus, the best choice is C.

A $200 Deposit Today That Earns an Annual Interest Rate