You have purchased a Guaranteed Investment contract (GIC) from an insurance firm that promises to pay you a 5% compound rate of return per year for 6 years. If you pay $10 000 for the GIC today and receive no interest along the way you will get ________ in 6 years (to the nearest dollar).

Question

Quizplus · Accepted Answer

Using the formula for compound interest: 
A = P(1 + r/n)^(nt)
where A is the amount after the specified time period (6 years), P is the principal amount (initial investment), r is the annual interest rate (5%), n is the number of times the interest is compounded per year (we assume annually in this case), and t is the time period (6 years).

So, plugging in the values:
A = 10 000 (1 + 0.05/1)^(1*6)
A = 10 000 (1.05)^6
A = $13 401 rounded to the nearest dollar.

Therefore, the best choice is C.

You Have Purchased a Guaranteed Investment Contract (GIC) from an Insurance