Question

An investor makes investments of $200 in year 1, $300 in year 3, and $500 in year 5. Calculate the future worth of the investment at the end of year 5, assuming an interest rate of 7% per annum.

(a) $1,000.00
(b) $1,123.98
(c) $1,105.63
(d) $1,857.09

Answer 1

The correct answer is (b) $1,123.98. To calculate the future worth of the investment at the end of year 5, we can use the formula for compound interest. The correct answer is (b) $1,123.98.

Step-by-step explanation:

To calculate the future worth of the investment at the end of year 5, we can use the formula for compound interest.

First, we need to calculate the future value of each individual investment.

For the $200 investment in year 1, the future value is $200(1 + 0.07)^4 = $254.96.

For the $300 investment in year 3, the future value is $300(1 + 0.07)^2 = $364.14.

For the $500 investment in year 5, the future value is $500(1 + 0.07)^0 = $500.

Now, we can add up the future values of all the investments to get the total future worth: $254.96 + $364.14 + $500 = $1,118.10.