Question

15. If $100 is placed in an account that earns a simple 4 percent, compounded quarterly, will it be worth in 5 years? a. $122.02 b. $105.10 c. $135.41 d. $120.90 e. $117.48 $1,000 for five years. Which one of the following will provide her with 16. Kate wants to invest the largest future value? a. 6 percent simple interest b. 6 percent interest, compounded monthly c. 6 percent interest, compounded annually d. 7 percent simple interest e. 7 percent interest, compounded monthly

Answer 1

Solution to Question 15

ER = [1 + (NR / m)]^m -1

ER = [1 + (.04/4)]⁴ - 1

ER = [1+.01]⁴ - 1

ER = 4.06%

FV = PV / (1+r)ⁿ

FV = $100 / (1+.0406)⁵

FV = $100 / 0.8196

FV = $122.02

Hence Option 1 is the correct answer

Solution to Question 16

Always to get higher FV Highest rate with lowest compounding frequency is preffered, in other words Highest rate with lowest compounding frequency results in highest FV

Hence Option E is correct as 7% rate is highest and frequency is lowest i.e monthly.