Which of the following is the correct way to compute the future value of $1 put into an account that earns 5 percent interest for 16 years? Select one:

a. $1 (1 +.05) ^16b. $1 (1 +.05 16) 16c. $1 (1 +.05 16) d. $1 (1 + 16/.05) ^16

a. $1 (1 +.05) ^16

Explanation:

The discounting of an amount today at an interest rate for a specific period of time is given by

A = P (1 + r) ^n

where

A = Future amount

P = present amount

r = rate in percent

n = time

Therefore, the future value of $1 put into an account that earns 5 percent interest for 16 years

= $1 (1 + 0.05) ^16

As P = $1, r = 5% and n = 16. Option a.