An investment today of $8,424 at 6% will yield payments of $2,000 per year for five years,or total payments of $10,000 over five years.The reason for this increase is that the interest is being earned on principal that is left invested each year.

Question

Quizplus · Accepted Answer

This statement is true. The concept being described is known as compound interest, where the interest earned on an investment is added to the principal, resulting in a higher balance and therefore higher interest earned in subsequent periods. In this case, the $8,424 investment earns 6% interest each year, resulting in a higher balance for each subsequent year's interest calculation. As a result, the total payments over five years are $10,000, which is more than the initial investment.

An Investment Today of $8,424 at 6% Will Yield Payments