Question

Which of the following statements is true—assuming that no additional deposits or withdrawals are made?
(A) An investment of $50 at an annual rate of 5% will return a higher value in five years than $25 invested at an annual rate of 10% in the same time.
(B) An investment of $25 at an annual rate of 10% will return a higher value in five years than $50 invested at an annual rate of 5% in the same time.

Answer 1

Answer:

The answer is the (A)

Explanation:

In the exercise you have to apply the equation of compound interest rate to the two scenarios or options that give the exercise to determine which options is greater.  

Future Value  = Amount o money *(1+ interest rate)^(n)  

Option(A) = $50*((1+5%)^(5))

Option(A) = $63,81

Option(B) = $25*((1+5%)^(5))

Option(B) = $40,26  

After do the two calculus, you can determine that the answer is A because in the 5 years that investment generate a higher value that B option , according with the future value equation.