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You are investing $100 today in a savings account. Which one of the following terms refers to the total value of this investment one year from now?

A-Future value
B-Present value
C-Principal amount
D-Discounted value
E-Invested principal

1 Answer

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Final answer:

The term that refers to the total value of a $100 investment in a savings account one year from now is Future value. Future value incorporates both the principal invested and any accumulated interest. Present value, discounted value, and invested principal have distinct meanings related to the value of money over time. Option A is correct.

Step-by-step explanation:

When you are investing $100 today in a savings account, the term that refers to the total value of this investment one year from now is A-Future value. This future value takes into account the principal amount, which in this case is $100, and the interest that accumulates over a period, typically within a year. The principal is the original sum invested. Should this investment earn simple interest, the calculation would look something like this: $100 + ($100 × interest rate × number of years). With compound interest, the calculation is on both the principal and the accumulated interest over previous periods.

The term B-Present value refers to what a future amount of money is worth today, given a certain interest rate. For example, if you're given a choice between receiving $100 today or $110 in one year, assuming a 10% interest rate, both options have the same present value, as you could invest $100 today to have $110 in one year. C-Principal amount is the initial sum of money invested or loaned. D-Discounted value refers to the present value of future cash flows, discounting the time value of money. Lastly, E-Invested principal is similar to principal amount, stating the sum of money put into the investment initially.

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