If Elizabeth invests $4,000 for five years and her investment earns 12% interest, compounding annually, what will it be worth at the end of her investment period?
Explanation
Answer: D - A $4,000 investment that earns 12% interest compounded annually would be worth $7,049.37 at the end of a five-year investment period. The equation for compound interest is A = P(1 + r/n)nt in which A is the amount including interest, P is the principle investment, r is the interest rate expressed in decimal form (0.12), n is the number of times interest is added per year, and t is the number of years for which the principal is invested. A = $4000(1+.12/1)5. = $7,049.37.
