Sun Lee's Investment Decision: High Interest, High Gains!

Which one of the following statements is correct if she invests $500 at a positive rate of interest for five years?

A. The higher the interest rate she earns, the less money she will have in the future.

B. The higher the interest rate, the longer she has to wait for her money to grow to $1,000 in value.

C. If Sun Lee can earn 7%, she will have to wait about six years to have $1,000 total.

D. At the end of the five years Sun Lee will have less money if she invests at 5% rather than at 7%.

E. At 10% interest Sun Lee should expect to have $1,000 in her account at the end of the five years.

The Impact of Interest Rates on Sun Lee's Investment

If Sun Lee invests $500 at positive interest rates for five years, then at the end of the five years Sun Lee will have less money if she invests at 5% rather than at 7%. The correct option is (D).

Let's calculate the amount Sun Lee will have at the end of five years if she invests $500:

At 5% interest, the amount Sun Lee will have at the end of five years is:

$500 × (1+0.05)⁵ = $638.14

At 7% interest, the amount Sun Lee will have at the end of five years is:

$500 × (1+0.07)⁵ = $701.276

So from the above calculations, we can conclude that Sun Lee will have less money at the end of five years if she invests at 5% rather than at 7%. Therefore, the correct option is D.