Which one of the following statements is correct concerning the time value of money?
A) The future value of $1 at the end of two years is equal to $1.00(1+r)(1+r)
B) As the interest rate increases for any given year, the future value interest factor will decrease.
C) The future value of $1 decreases with the passage of time.
D) The future value of $1.00 at the end of 2 years is $1.00+2($1.00 × r).

Question

Quizplus · Accepted Answer

The future value of $1 at the end of two years, assuming compound interest, is calculated by multiplying $1 by (1+r) twice, which is represented as $1.00(1+r)(1+r). This formula accounts for the interest earned in the first year being reinvested and earning additional interest in the second year.

Which One of the Following Statements Is Correct Concerning the Time