Which of the following statements is true-assuming that no additional deposits or withdrawals are made?

(A) An investment of $50 at an annual rate of 5% will return a higher value in five years than $25 invested at an annual rate of 10% in the same time.

(B) An investment of $25 at an annual rate of 10% will return a higher value in five years than $50 invested at an annual rate of 5% in the same time.

Question

Business

Lukas Vang

9 November, 21:41

Which of the following statements is true-assuming that no additional deposits or withdrawals are made?

(A) An investment of $50 at an annual rate of 5% will return a higher value in five years than $25 invested at an annual rate of 10% in the same time.

(B) An investment of $25 at an annual rate of 10% will return a higher value in five years than $50 invested at an annual rate of 5% in the same time.

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Answers (1)

Know the Answer?

Ernest Russell · Answer 1

The answer is the (A)

Explanation:

In the exercise you have to apply the equation of compound interest rate to the two scenarios or options that give the exercise to determine which options is greater.

Future Value = Amount o money * (1 + interest rate) ^ (n)

Option (A) = $50 * ((1+5%) ^ (5))

Option (A) = $63,81

Option (B) = $25 * ((1+5%) ^ (5))

Option (B) = $40,26

After do the two calculus, you can determine that the answer is A because in the 5 years that investment generate a higher value that B option, according with the future value equation.