Calculate the future value of $7,000 in:

a. 5 years at an interest rate of 7% per year.

b. 10 years at an interest rate of 7% per year.

c. 5 years at an interest rate of 14% per year.

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

a. Calculate the future value of $7,000 in 5 years at an interest rate of 7% per year.

The future value of $7,000 in 5 years at an interest rate of 7% per years is ______ (Round to the nearest dollar)

b. Calculate the future value of $7,000 in 10 years at an interest rate of 7% per year.

The future value of $7,000 in 10 years at an interest rate of 7% per years is ______ (Round to the nearest dollar)

c. Calculate the future value of $7,000 in 5 years at an interest rate of 14% per year.

The future value of $7,000 in 5 years at an interest rate of 14% per years is ______ (Round to the nearest dollar)

d. Why is the interest the amount of interest earned in part (a) less than half of the amount of interest earned in part (b) (Select the best choice below)

A.

The annual interest rate in part (b) is slightly higher than the rate assumed in part (a). This is because of compounding.

B.

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

C.

This results because you earn more interest on past interest. As interest is earned on the increasing amount of accumulatedinterest, the money grows faster as time goes on.

D.

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).