An investment of $100 today is worth $116.64 at the end of two years if it earns an annual interest rate of 8%. How much interest is earned in the first year and how much in the second year of this investment?
A) The interest earned in year one is $8.32 and the interest earned in year two is $8.32.
B) The interest earned in year one is $8.00 and the interest earned in year two is $8.64.
C) The interest earned in year one is $8.64 and the interest earned in year two is $8.00.
D) There is not enough information to solve this problem.
Answer: B
Explanation: B) FV = PV ∗ (1 + r)n = $100 ∗ (1.08)1 - $100 = $8.00 and
$108(1.08)1 - $108 = $8.64
Business
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