Dan wanted to invest his savings of $1000.00. He found an investment opportunity that would earn 7 percent interest compounded annually each year for the next two years. If he puts his money into this investment, in the first year he will earn $70 in interest, while in the second year he will earn _____ in interest.
A) $14.70
B) $77
C) $74.90
D) $107.77

Question

Quizplus · Accepted Answer

To find the interest earned in the second year, we need to calculate the interest earned on the initial investment plus the interest earned in the first year.

Interest earned in the first year = Principal * Rate = $1000 * 0.07 = $70

Total value at the end of the first year = Principal + Interest = $1000 + $70 = $1070

Interest earned in the second year = Total Value at the end of the first year * Rate = $1070 * 0.07 = $74.90

Therefore, the total interest earned in two years = Interest earned in the first year + Interest earned in the second year = $70 + $74.90 = $144.90

The closest option is C, which is $74.90.

Dan Wanted to Invest His Savings of $1000