A $100 deposit today that earns an annual interest rate of 10% is worth how much at the end of two years? Assume all interest received at the end of the first year is reinvested the second year.
A)$100
B)$120
C)$121
D)$122

Question

Quizplus · Accepted Answer

At the end of the first year, the deposit would be worth $100 + $10 (10% interest) = $110.
Since the interest received at the end of the first year is reinvested the second year, the deposit at the beginning of the second year would be $110.
At the end of the second year, the deposit would be worth $110 + $11 (10% interest) = $121.
Therefore, the best choice is C.

A $100 Deposit Today That Earns an Annual Interest Rate