A two-year investment of $200 is made today at an annual interest rate of 6%.Which of the following statements is TRUE?
A)The interest earned in year two is $12.00 and year one is $12.72.
B)The interest earned in year one is $12.00 and year two is $12.72.
C)The FV is $224.00.
D)The future value would be greater if the interest rate were lower.

Question

Quizplus · Accepted Answer

Using the formula FV = PV x (1 + r)^n
FV = $200 x (1 + 0.06)^2 = $224.00
The interest earned in year one is $200 x 0.06 = $12.00
The interest earned in year two is $212.00 x 0.06 = $12.72
Therefore, option B is correct as it correctly identifies the order of the interest earned in year one and two. Option C is also correct in identifying the final future value. Option A and Option D are incorrect as they give wrong information.

A Two-Year Investment of $200 Is Made Today at an Annual