Answer: B - Scenario 2: Invest $200 for 4 years at 5%. Despite a low principal, the interest rate and number of years combine to yield a return of $43.10, the largest of all four scenatios.
Key Takeaway: To find the largest return, calculate the future value for each scenario and then subtract the principal. Remember that exponents are calculated before multiplication.
Scenario 1:
F = P(1+I)N
F = 100(1+0.06)5
F = 100(1.065)
F ≈ $133.82
F-P ≈ $33.82
Scenario 2:
F = P(1+I)N
F = 200(1+0.05)4
F = 200(1.054)
F ≈ $243.10
F-P ≈ $43.10
Scenario 3:
F = P(1+I)N
F = 300(1+0.05)2
F = 300(1.052)
F = $330.75
F-P = $30.75
Scenario 4:
F = P(1+I)N
F = 400(1+0.02)4
F = 400(1.024)
F ≈ $432.97
F-P ≈ $32.97
