In: Finance
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
$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 |