If $2,000 Is Invested in an Account with 5% Interest

question 75

Multiple Choice

If $2,000 is invested in an account with 5% interest compounding yearly, what will the balance of the account be after 6 years? Please refer to the following Future Value table:
$$\begin{array} {| r | r | r | r | r | } \hline\begin{array} { l } \text { Future } \\\text { Value of } \\\text { s1 }\end{array} & & & & \\\hline & 4 \% & 5 \% & 6 \% & 7 \% \\\hline 1 & 1.040 & 1.050 & 1.060 & 1.070 \\\hline 2 & 1.082 & 1.103 & 1.124 & 1.145 \\\hline 3 & 1.125 & 1.158 & 1.191 & 1.225 \\\hline 4 & 1.170 & 1.216 & 1.262 & 1.311 \\\hline 5 & 1.217 & 1.276 & 1.338 & 1.403 \\\hline 6 & 1.265 & 1.340 & 1.419 & 1.501 \\\hline\end{array}$$

• A) $1,340
• B) $2,680
• C) $2,676
• D) $2,432

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Definitions:

Compounded

The process where the value of an investment increases because the earnings on an investment, both capital and interest, earn interest as time passes.

Monthly

Occurring, produced, or executed once every month.

Annuity

A financial product that pays out a fixed stream of payments to an individual, typically used as part of retirement planning.

RRSP

Registered Retirement Savings Plan, a Canadian account for holding savings and investment assets, intended to support retirement.