A two-year investment of $200 is made today at an annual interest rate of 6%.Which of the following statements is true?
A)The interest earned in year two is $12.00 and year one is $12.72.
B)The interest earned in year one is $12.00 and year two is $12.72.
C)The FV is $224.00.
D)The future value would be greater if the interest rate were lower.

Question

Quizplus · Accepted Answer

Using the simple interest formula:
Interest = Principal x Rate x Time
Interest earned in year one = $200 x 0.06 x 1 = $12.00
Interest earned in year two = $200 x 0.06 x 1 = $12.00
Total interest earned over two years = $12.00 + $12.00 = $24.00
The future value using simple interest formula is:
FV = Principal + Interest = $200 + $24.00 = $224.00
Therefore, option B is correct, and the interest earned in year one is $12.00, and the interest earned in year two is $12.00. The total interest earned over two years is $24.00, and the future value is $224.00. Option D is incorrect because a higher interest rate would result in a higher future value.

A Two-Year Investment of $200 Is Made Today at an Annual