Question

In: Finance

Mr. Nailor invests $20,000 in a money market account at his local bank. He receives annual...

Mr. Nailor invests $20,000 in a money market account at his local bank. He receives annual interest of 6% for 5 years. How much return will his investment earn during this time period? Use Appendix A to calculate the answer.

Multiple Choice

  • $14,940

  • $6,760

  • $24,444

  • $26,760

Solutions

Expert Solution

$6,760

Step-1:Future value of investment
Future value of investment = Investment x Future value of 1
= $       20,000 x                   1.338
= $       26,760
Working:
Future Value of 1 = (1+i)^n Where,
= (1+0.06)^5 i Interest rate 6%
=              1.338 n time 5
Step-2:Return on investment earned
Return on investment = Future value of investment - Investment
= $       26,760 - $            20,000
= $         6,760

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