When in a situation where Tortoise Corp. wants to earn $100,000 at the end of 5 years with a 10% annual compounding interest rate, it will have to invest $62,092 at the beginning of the year 1. Therefore, the option D holds true.
What is the significance of annual compounding?
Annual compounding can be referred to or considered as a condition wherein the amount gets compounded with an interest accumulated along with the principal amount of investment until the period of maturity.
Present Value = Future Value*1/(1+r)^n
Present Value = 100000 * 1/1.1^5
Present Value = $62,092.
Therefore, the option D holds true and states regarding the significance of annual compounding.
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