Which of the Following Is the Correct Way to Compute

question 473

Multiple Choice

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?

• A)$1(1 + .05)¹⁶
• B)$1(1 + .05 16) 16
• C)$1(1 + .05 16)
• D)$1(1 + 16/.05)¹⁶

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Definitions:

Ordinary Annuity

An annuity in which payments are made at the end of each period, such as yearly, monthly, or quarterly.

Periodic Payment

Payments made regularly (such as weekly, monthly, or annually) towards loans, mortgages, or annuities.

Ordinary Annuity

Consistently equal monetary transfers at each term's end within a finite interval.

Compounded Quarterly

A method where interest is computed on the original amount as well as on the interest that has been added over prior periods, and this calculation occurs quarterly.