Question

Mason invested $6000 in King Steel. His investment earned him an average

of 7.5% each year. How much will his investment be worth in 5 years?

Answer 1

Value: $ 8640

Explanation:

Here we can note that compound interest is applicable. If so, the formula below can be taken into account:

C = P ( 1 + I/100 ) ^ T

* ( Where C - Compound Interest, I - Interest Rate, T - Time, P - Start Value )

To really understand this formula, you have to follow the following:

1. Convert Interest Rate 7.5% into a decimal form (0.075)

2. Add 1 to the decimal form of I ( 1 + 0.075 = 1.075 )

3. Multiply the preceding T times ( 1.075 ^ 5 = 1.44 )

4. Take the prior value by the Start Value 6000 as such ( 1.44 * 6000 = 8640)

* Masons's investment will grow to around 8640 dollars ($)

Answer 2

$8,613.78

Explanation:

The multiplier each year is 1+7.5% = 1.075, so in 5 years, the investment will have been multiplied by 1.075^5 ≈ 1.435629.

Then the value of Manson's investment will be ...

$6000·1.435629 ≈ $8,613.78

_____

Comment on the question

The first rule of investing is that "past performance is not a guarantee of future results." The question has a funny combination of past tense and future tense verbs. The past performance is described, and we are asked about the future value. In truth, we cannot say anything about the future value.