If You Deposit $1,000 in an Account That Earns 5

question 10

Multiple Choice

If you deposit $1,000 in an account that earns 5% per year, compounded annually, you will have $1,276 at the end of 5 years. What would be the balance in the account at the end of 5 years if interest compounds monthly?

• A) $784
• B) $1,000
• C) $1,276
• D) $1,283

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Definitions:

Market Risk Premium

The incremental profit expected by an investor when they decide to hold a market portfolio with risk rather than secure, riskless assets.

Risk-Free Rate

The theoretical rate of return of an investment with zero risk, often represented by Treasury bills, serving as a benchmark for assessing the risk and return of other investments.

Good Economy

An economic state characterized by strong growth, low unemployment, and stable prices, reflecting overall health and prosperity.

Poor Economy

A situation characterized by low economic activity, high unemployment, and declining market conditions.