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Compound Interest, SMB-011 MC

Marshall's investment earns 5% per annum, compounded annually.

He calculates that his investment will be worth $1100 in 3 years, to the nearest dollar.

The amount Marshall invests now is closest to

  1. $892
  2. $928
  3. $950
  4. $1008
Show Answers Only

`C`

Show Worked Solution

`FV = PV(1 + r)^n`

`r` `=\ text(5%)` `= 0.05\ text(per annum)`
`n` `=3`  

 

`1100` `= PV(1 + 0.05)^(3)`
`:.PV` `= \frac{1100}{1.05^{3}}`
  `= $950`

 
`=> C`