Question

A two-year investment of $200 is made today at an annual interest rate of 6%. Which of the following statements is TRUE? The future value would be greater if the interest rate were lower. The interest earned in year two is $12.00 and year one is $12.72. The interest earned in year one is $12.00 and year two is $12.72. The FV is $224.00.

Answer 1

1
Interest earned in year 1	$12.00	200*6%
Interest earned in year 2	$12.72	(200+12)*6%
Future value	$224.00	200+12+12.72
Statement (1) is false this is because the future value would be higher than current investment value as long as investment is earning interest
Statement (2) is false as interest earned in year 1 is $12 and in year 2 is $12.72
Statement (3) is true as interest earned in year 1 is $12 and in year 2 is $12.72 from above calculation
Statement (4) is true that is future value is $224 from above calculation
2
In case of interest only loan the annual payment would include only interest amount paid on the loan, no principal is paid.
The entire principal is paid on due date of the loan
Annual payment	$4,400	40000*11%
Thus, annual payment on loan is $4,400