You invested $1,000 for 5 years in an account that earns 5 percent. However, today you learn that you are able to move the account into an investment that earns 10 percent. Which of the following statements is correct?
A)If you select the investment earning 10 percent, you will double your profit.
B)If you select the investment earning 10 percent, you will more than double your profit.
C)If you select the investment earning 10 percent, your profit will be less than double.
D)None of these statements is correct.

Question

Quizplus · Accepted Answer

If you keep your money in the 5 percent account for 5 years, the total amount you will have at the end is:

$1,000 × (1 + 0.05)^5 = $1,276.28

If you move your money to the 10 percent investment today, the total amount you will have at the end of 5 years is:

$1,000 × (1 + 0.10)^5 = $1,610.51

The difference between these two amounts is:

$1,610.51 - $1,276.28 = $334.23

This means that by choosing the 10 percent investment, you will earn an additional $334.23 over 5 years. This is more than double the amount you would earn in the 5 percent account, so the correct answer is B: "If you select the investment earning 10 percent, you will more than double your profit."

You Invested $1,000 for 5 Years in an Account That