If you put $100 into a bank account that earns 5 per cent interest per year,what is the formula you should use to determine the account's future value in one year?
A) Future value equals the present value divided by the rate of interest.
B) Future value equals the present value multiplied by the rate of interest.
C) Future value equals the present value multiplied by one plus the rate of interest in decimals.
D) All of these yield the same answer.

Question

Quizplus · Accepted Answer

The formula for calculating future value with compound interest is FV = PV x (1 + r)^n, where FV is the future value, PV is the present value, r is the interest rate as a decimal, and n is the number of compounding periods. Since the problem specifies one year, we can assume that the compounding period is annual (n = 1). Therefore, the formula becomes FV = 100 x (1 + 0.05)^1, which simplifies to FV = 100 x 1.05 = 105. So, the future value of the account after one year is $105. Option C uses this formula, making it the correct choice. Options A and B are incorrect, as they do not take the effect of compounding into account. Option D is incorrect, as not all of the choices yield the same answer.

If You Put $100 into a Bank Account That Earns