Hey Anna!

This question is testing your knowledge on the concept of compounding interest (the ability to earn interest on interest). For example, If you were to invest $25,000 and receive a return of 8% during the first year, your balance at the end of year 1 would be: $25,000 x (1+(8/100)) or $25,000 x 1.08 = $27,000.

Then, in year 2, you would earn 8% interest on your balance of $27,000. Your new balance at the end of year two would be equal to $27,000 * 1.08 = $29,160. The process would then continue for the remainder of the 10 year period.

Year 1: $25,000 * 1.08 = $27,000

Year 2: $27,000 * 1.08 = $29,160

Year 3: $29,160 * 1.08 = $31,492.80

Year 4: $31,492.80 *1.08 = $34,012.22

Year 5: $34,012.22 * 1.08 = $36,733.20

Year 6: $36,733.20 * 1.08 = $39,671.86

Year 7: $39,671.86 * 1.08 = $42,845.61

Year 8: $42,845.61 * 1.08 = $46,273.26

Year 9: $46,273.26 * 1.08 = $49,975.12

Year 10: $49,975.12 * 1.08 = $53,973.13

An easier way to calculate the final amount is to use exponentials. $25,000 * (1.08)^10 = $53,973.13.