With compound interest, the investor earns interest on the principal amount invested plus interest on accumulated interest. Which of the following compounding frequencies would yield the investor the greatest ending balance assuming all else is equal?

Question

BlackTom AI · Accepted Answer

When analyzing compounding frequencies, the key idea is that interest is added to the balance more often with higher-frequency compounding, which in turn earns interest in the next period. 
Option: daily. The reasoning here is that daily compounding updates the balance each day, so the interest from each day itself earns interest sooner, leading to the largest ending balance among the given options. 
Option: monthly. While monthly compounding does increase the balance more often than quarterly or annual compounding, it cannot surpass daily compounding because there are fewer compounding moments per year for interest to be added and earn future interest. 
Option: quarterly. Quarterly compounding occurs four times a year; this means even longer gaps between interest postings than monthly or daily, resulting in a smaller accumulated amount than higher-frequency options, assuming the rate and principal are the same. 
Option: annually. Annual compounding posts interest once per year, so none of the year’s interest is able to earn interest within the same year, producing the smallest ending balance among these choices when all other factors are equal. 
In summary, increasing the frequency of compounding generally increases the ending balance because interest is credited more often and has more opportunities to compound, making daily the option that yields the greatest ending balance in this set.

R E 250 A Final Exam

With compound interest, the investor earns interest on the principal amount invested plus interest on accumulated interest. Which of the following compounding frequencies would yield the investor the greatest ending balance assuming all else is equal?

查看解析

登录即可查看完整答案

类似问题

Part 1Consider a twominus−year investment: Given a constant and positive interest rate, the interest earned in the second year will be greater than the interest earned in the first year (assuming annual compounding). Part 1 True False

If Jack and Jill deposit $1,000 into a savings account that earns 4.5% annual interest (compounded monthly), how long will it take for their money to double to $2,000?

How much will you get back on a five year investment of $100 that pays 5% interest per year?

What is the effective yield (APY) if the Annual Percentage Rate (APR) is 7.64 percent and it is compounded quarterly?

If you deposit $10,000 in an account with an annual rate of 9% compounded semiannually, how long will it take for you to have $2,000,000 in the account?

In order to determine the future value of some lump sum, we must use the process of ________.

You have located an investment that pays 9 percent per year. You invest $800. How much will you have in seven years? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.Blank.xlsx

If you deposit $1'000 in a savings account that pays 4% compounded annually , compute the future value of your account after 4 years.

更多留学生实用工具

考试浏览器助手

风格化写作助手

论文查重助手

文献引用助手

课堂转译助手

课堂笔记助手

Quiz搜索助手

学校历年真题

智能刷题助手

智能匹配练习

希望你的学习变得更简单

R E 250 A Final Exam

With compound interest, the investor earns interest on the principal amount invested plus interest on accumulated interest. Which of the following compounding frequencies would yield the investor the greatest ending balance assuming all else is equal?

查看解析

登录即可查看完整答案

类似问题

Part 1Consider a twominus−year ​investment: Given a constant and positive interest​ rate, the interest earned in the second year will be greater than the interest earned in the first year​ (assuming annual​ compounding). Part 1 True False

If Jack and Jill deposit $1,000 into a savings account that earns 4.5% annual interest (compounded monthly), how long will it take for their money to double to $2,000?

How much will you get back on a five year investment of $100 that pays 5% interest per year?

What is the effective yield (APY) if the Annual Percentage Rate (APR) is 7.64 percent and it is compounded quarterly?

If you deposit $10,000 in an account with an annual rate of 9% compounded semiannually, how long will it take for you to have $2,000,000 in the account?

In order to determine the future value of some lump sum, we must use the process of ________.

You have located an investment that pays 9 percent per year. You invest $800. How much will you have in seven years? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.Blank.xlsx

If you deposit $1'000 in a savings account that pays 4% compounded annually , compute the future value of your account after 4 years.

更多留学生实用工具

希望你的学习变得更简单

Part 1Consider a twominus−year investment: Given a constant and positive interest rate, the interest earned in the second year will be greater than the interest earned in the first year (assuming annual compounding). Part 1 True False