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 PV is $178.00.
B)The FV is $224.00.
C)The FV is $224.72.
D)This question is irrelevant because there are no two-year investments that earn an average of 6% per year.

Question

Quizplus · Accepted Answer

To calculate the future value (FV) of the investment, we can use the formula:

FV = PV x (1 + r)^n

where PV is the present value or initial investment, r is the interest rate per period, and n is the number of periods.

In this case, PV = $200, r = 6% = 0.06 (since the rate is annual, we need to divide by the number of periods in a year, which is 1), and n = 2 (since the investment is for two years). Plugging in these values, we get:

FV = $200 x (1 + 0.06)^2
FV = $200 x (1.06)^2
FV = $224.72

Therefore, statement C is true and the answer is C. Statement A is not true because $178.00 is the present value of the investment, not the future value. Statement B is not true because the future value is $224.72, not $224. Statement D is not true because there are indeed investments that can earn an average of 6% per year over a two-year period.

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