You invested $1000 for 5 years in an account that earns 5%. However, today you learn that you are able to move the account into an investment that earns 10%. Which of the following statements is correct?
A) If you select the investment earning 10%, you will double your profit.
B) If you select the investment earning 10%, you will more than double your profit.
C) If you select the investment earning 10%, your profit will be less than double.
D) None of these statements is correct.

Question

Quizplus · Accepted Answer

If you leave the account in the 5% investment for 5 years, the future value will be:

FV = $1000 * (1 + 0.05)^5
FV = $1,276.28

If you move the account to the 10% investment for the remaining 5 years, the future value will be:

FV = $1,276.28 * (1 + 0.10)^5
FV = $2,078.93

So, the profit from the 5% investment is $276.28 ($1,276.28 - $1000), while the profit from the 10% investment is $1,078.93 ($2,078.93 - $1000). Therefore, if you select the investment earning 10%, you will more than double your profit.

You Invested $1000 for 5 Years in an Account That