Martin invested $1,000 six years ago and expected to have $1,500 today. He has n

Question

Martin invested $1,000 six years ago and expected to have $1,500 today. He has not added or withdrawn any money from this account since his initial investment. All interest was reinvested in the account. As it turns out, Martin only has $1,420 in his account today. Which one of the following must be true?

Martin earned simple interest rather than compound interest.

Martin earned a lower interest rate than he expected.

Martin did not earn any interest on interest as he expected.

Martin ignored the Rule of 72 which caused his account to decrease in value.

The future value interest factor turned out to be higher than Martin expected.

Explanation / Answer

Solution-

Martin earned a lower interest rate than he expected.

Explanation-

Martin earned lower Interest rate than he expected because he expect for $2,000 in future but only get $1,420.

So, the expected money is not generate by the investment.

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