How is the future value of \$500 invested for one year at 6\% annual interest computed?

• A. Future Value = \$500 \times 0.06
• B. Future Value = \$500 - (\$500 \times 0.06)
• C. Future Value = \$500 \div (1 + 0.06)
• D. Future Value = \$500 \times (1 + 0.06)

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the concept of future value. Future value represents the amount of money an investment will grow to after earning interest over a specified period. It is calculated using the formula: Future Value = Present Value × (1 + Interest Rate).
2. Step 2: Identify the given values in the problem. The present value (initial investment) is \$500, the annual interest rate is 6% (or 0.06 in decimal form), and the time period is one year.
3. Step 3: Substitute the given values into the formula for future value. Using MathML, the formula is: $\mathrm{Future}\mathrm{Value}=\mathrm{Present}\mathrm{Value}\times (1+\mathrm{Interest}\mathrm{Rate})$. Replace 'Present Value' with 500 and 'Interest Rate' with 0.06.
4. Step 4: Perform the addition inside the parentheses first. Add 1 to the interest rate (0.06), resulting in 1.06. This step simplifies the formula to: Future Value = \$500 × 1.06.
5. Step 5: Multiply the present value (\$500) by the result of the addition (1.06). This will give the future value of the investment after one year at 6% annual interest.