Asked by Valeriya Pestrikova on Jun 02, 2024
Verified
Consider a graph of future values of two investments of $1000. How would you expect the graphs of the future values to look if both investments earn 5% nominal rate, but investment 1 is compounded monthly and investment 2 is compounded semi-annually?
A) Investment 1 is steeper and the graph is growing at a faster rate.
B) Investment 2 is steeper and the graph is growing at a faster rate.
C) Investment 1 is steeper and the graph is growing at a slower rate.
D) Investment 2 is steeper and the graph is growing at a slower rate.
E) The two graphs look the same as they are both compounding interest.
Nominal Rate
The promoted or declared rate of interest on a loan or investment, excluding the impacts of compounding and inflation.
Compounded Monthly
Interest calculation method involving the addition of interest to the principal sum of a loan or deposit, repeated every month.
Compounded Semi-Annually
Interest calculation method where interest is added to the principal sum twice a year, leading to interest earnings on interest.
- Evaluate the expansion of investments through various rates and periods of compounding.
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Learning Objectives
- Evaluate the expansion of investments through various rates and periods of compounding.
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