What sum invested today at 5% per annum compound interest will grow to KSh 110,250 in 2 years?
Answer and explanation
Correct answer: C. KSh 100,000
- Step 1: Present value = future value / (1 + r/100)^n. Step 2. = 110,250 / (1.05)^2 = KSh 100,000. Answer: KSh 100,000. Why not the others: KSh 99,225: That takes simple discount off, which ignores compounding. KSh 52,500: That divides by the growth factor and the number of years, which is not the formula. KSh 105,000: That discounts for one year only.
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