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Answer :
Final answer:
To calculate the future value of an investment of $1 million with 5% compound interest annually for 3 years, the compound interest formula is used. The resulting future value is $1,157,625, making option a) the correct answer.
Explanation:
The value of an investment that is compounded annually at a rate of 5% for 3 years on $1 million can be calculated using the formula for compound interest:
FV = PV (1 + r)^n
Where:
- FV is the future value of the investment
- PV is the present value of the investment ($1,000,000)
- r is the annual interest rate (5% or 0.05)
- n is the number of years the money is invested (3)
Plugging the values into the formula:
FV = $1,000,000 * (1 + 0.05)^3
FV = $1,000,000 * (1.157625)
FV = $1,157,625
Therefore, the correct answer is option a) $1,157,625.
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