solution

Terry invested $2,000 today in an investment that pays 6.5 percent annual interest. Which one of the following statements is correct, assuming all interest is reinvested? (option 4 is incorrect, according to exam)

Question options: 1) Terry will earn the same amount of interest each year.

2) Terry will earn an increasing amount of interest each and every year even if he should decide to withdraw the interest annually rather than reinvesting the interest.

3) Terry’s interest for year one will be equal to $2,000 × 0.065

4) Terry could have the same future value and invest less than $2,000 initially if he could earn less than 6.5 percent interest.

5) Terry will be earning simple interest.