Asked by Nicole Y. Watkins on May 10, 2024
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By calculating the maturity value of $100 invested for 1 year at each rate, determine which rate of return an investor would prefer.
a) 8.0% compounded monthly.
b) 8.1% compounded quarterly.
c) 8.2% compounded semi-annually.
d) 8.3% compounded annually.
Compounded Monthly
Describes the method of computing interest by adding the interest from past periods to the original principal amount and then doing the calculations monthly.
Rate of Return
The earnings or losses accrued from an investment over a predetermined period, measured as a fraction of the investment's buying price.
- Assess the impact of the frequency of compounding on the final value of investments at maturity.
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Learning Objectives
- Assess the impact of the frequency of compounding on the final value of investments at maturity.