UPCAT Mathematics practice question 35: ₱5,000 is invested at 10% compounded annually. What is its value after 2 years?
Correct answer
D. ₱6,050
A = 5,000(1.10)² = 5,000 × 1.21 = 6,050. Simple interest would give only 6,000.
The question
₱5,000 is invested at 10% compounded annually. What is its value after 2 years?
- Option A: ₱5,500
- Option B: ₱6,000
- Option C: ₱6,100
- Option D: ₱6,050Correct
Why D is correct
A = 5,000(1.10)² = 5,000 × 1.21 = 6,050. Simple interest would give only 6,000.
Why the other options are wrong
- A ₱5,500
- Only one year of interest has been applied.
- B ₱6,000
- This is simple interest: 10% of 5,000 twice. Compounding earns interest on the first year's interest as well.
- C ₱6,100
- Adds an extra 10% of the interest rather than compounding the whole balance.