Calculate the future value of $2,000 in:

(a) 5 years at an interest rate of 8% per year. $__________. (Round to the nearest dollar.)

(b) 10 years at an interest rate of 8% per year. $__________. (Round to the nearest dollar.)

(c) 5 years at an interest rate of 16% per year. $__________. (Round to the nearest dollar.)

(d) Why is the amount of interest earned in part (a) less than half the amount of interest earned in part (b)?

choose answer:

1-The amount of interest earned in part (a) is really half of the amount of interest earned in part (b) since in part (b) the money grows for twice as many years as in part (a).

2-The annual interest rate in part (b) is slightly higher than the rate assumed in part (a).

3-The interest rate earned in part (a) is based on a lower effective annual interest rate.

4-This is because you earn interest on past interest. Since the beginning of the second 5 year starts off with more money than the beginning of the first 5 years, the money grows faster.