The future value of $100 received today and deposited in an account for four years paying semiannual interest of 6 percent is ________.
A) $450
B) $127
C) $889
D) $134

Question

Quizplus · Accepted Answer

The future value (FV) of an investment is calculated using the formula FV = PV(1 + r/n)^(nt), where PV = present value, r = annual interest rate, n = number of compounding periods per year, and t = time in years. For this question, PV = $100, r = 6% or 0.06, n = 2 (since interest is compounded semiannually), and t = 4 years. Plugging these values into the formula gives FV = $100(1 + 0.06/2)^(2*4) = $100(1 + 0.03)^(8) = $100(1.03)^8 ≈ $126.68, which rounds to $127.

The Future Value of $100 Received Today and Deposited in an Account