Answer:
c. could have deposited less money today and still had $5,000 in four years if the account paid a higher rate of interest
Explanation:
Nirav just opened a savings account paying 2 percent interest, compounded annually. After four years, the savings account will be worth $5,000. Assume there are no additional deposits or withdrawals. Given this information, Nirav:
a. will earn simple interest on his saving every year for four years
False. Problem states it's compound interest.
b. has an account currently valued at $5,000
False. Problem states account will be worth $5,000 in 4 years.
c. could have deposited less money today and still had $5,000 in four years if the account paid a higher rate of interest
True. With a higher interest rate, he would earn more interest, so he could start with less money and still end up with $5000 at the end of 4 years.
d. could earn more interest on this account if the interest earnings were withdrawn annually
False. If he withdraws money periodically, there is less principal to earn interest on, so he will earn less interest overall.
e. will earn the same amount of interest each year for four years
False. Since compound interest earns interest on interest, all else being equal, compound interest earns more interest than simple interest.