Assume that you set aside $500 per year, and invest that money over the next five years in an account earning 6%. What is the amount of interest you will earn on this investment?
A) $300
B) $319
C) $263
D) $250

Question

Quizplus · Accepted Answer

The correct calculation involves using the formula for the future value of a series in an annuity (since the investment is made at regular intervals). The formula is FV = P * [(1 + r)^n - 1] / r, where P is the payment ($500), r is the annual interest rate (6% or 0.06), and n is the number of periods (5 years). Calculating gives a future value, from which you subtract the total principal (5*$500 = $2500) to find the interest earned, which is approximately $319.

Assume That You Set Aside $500 Per Year, and Invest