$1,000 is invested at 6% annual interest, compounded annually. Which value is closest to the balance after 2 years?

With annual compounding, each year's interest is added before the next year's is computed: $1000(1.06)^2=1000(1.1236)=1123.60$, which is closest to $1,124, choice C. Year 1 gives $1,060, and year 2 earns 6\% on $1,060, which is $63.60. Choice B ($1,120) uses simple interest, $1000+2(60)$, and misses the $3.60 earned on the first year's interest. Choice A ($1,060) is the balance after only one year. Choice D ($1,360) uses $6\%$ per year for $6$ years or another wrong exponent, far too much.