Final answer:
To calculate the value of the investment after 2 years, use the formula for compound interest and substitute the given values. The principal sum, annual interest rate, and number of years are needed. The formula for compound interest is V = P(1 + r/n)^(nt).
Step-by-step explanation:
The value of the investment after 2 years can be calculated using the formula for compound interest:
V = P(1 + r/n)^(nt)
Where:
V is the future value
P is the principal sum
r is the annual interest rate (in decimal form)
n is the number of times interest is compounded per year
t is the number of years
In this case, the interest is compounded annually, so n = 1.
First, we need to calculate the value of the investment after 3 years:
V = 100(1 + 0.05/1)^(1*3) = 115
Then, we can calculate the value of the investment after 2 years:
V = 100(1 + 0.05/1)^(1*2) = 110.25