A company invests $10,000 at 7% compounded annually. At the end of the second year, the company should have $11,400 in the fund.
$10,000 + ($10,000 x 7%) + [($10,000 + ($10,000 x 7%)) x 7%] = $11,449 or
$10,000 x 1.07 x 1.07 = $11,449

Question

Quizplus · Accepted Answer

The calculation shown in the question is incorrect. The correct formula to calculate compound interest for a certain number of years is:

FV = PV x (1 + r)^n

Where FV is the future value, PV is the present value, r is the annual interest rate, and n is the number of compounding periods.

Using the given information, we have:

FV = $10,000 x (1 + 0.07)^2 = $11,449.10

Therefore, the correct answer is B.

A Company Invests $10,000 at 7% Compounded Annually