High School

Value an investment where you will pay 5% (compounded annually) for the 3rd year on $1 million.

a) $1,157,625
b) $1,157,625.10
c) $1,157,630
d) $1,157,630.10

Answer :

Final answer:

To calculate the future value of an investment of $1 million with 5% compound interest annually for 3 years, the compound interest formula is used. The resulting future value is $1,157,625, making option a) the correct answer.

Explanation:

The value of an investment that is compounded annually at a rate of 5% for 3 years on $1 million can be calculated using the formula for compound interest:

FV = PV (1 + r)^n

Where:

  • FV is the future value of the investment
  • PV is the present value of the investment ($1,000,000)
  • r is the annual interest rate (5% or 0.05)
  • n is the number of years the money is invested (3)

Plugging the values into the formula:

FV = $1,000,000 * (1 + 0.05)^3

FV = $1,000,000 * (1.157625)

FV = $1,157,625

Therefore, the correct answer is option a) $1,157,625.

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