Chapter 24, Problem 4MCQ

To determine

The correct option that determines the future value of $100 if the interest rate is 5%.

Answer to Problem 4MCQ

Option d is correct.

Explanation of Solution

Explanation for the correct option:

d.

The future value of $100 can be determined by using the following formula:

  $\begin{array}{c}\text{FV=PV}{\left(\text{1+r}\right)}^{\text{n}}\\ \text{=\$100}{\left(\text{1}\text{.05}\right)}^{\text{1}}\\ \text{=\$105}\end{array}$

The future value of $100 if the interest rate is 5% will be $105. Therefore, option d is correct.

Explanation for incorrect options:

Since the question is computation-based, future value formula is used. Therefore, options a, b, c, and e are incorrect.

Economics Concept Introduction

Interest rates: The rates that were charged by the investor who is ready to lend his/her money for a certain period of time to the borrower.

Future value: Future value of $1 will be determined by using $1($1+r) which means the future value of $1 will be greater due to the growth rate.