Using the Future Value Table, a Student Found That the Future

question 5

Multiple Choice

Using the future value table, a student found that the future value amount of $1 for 5 years at an annual interest rate of 10% is 1.611. The student also observed that the future value of $1 for 5 years at 10% compounded semiannually is 1.629. This means that

• A) the student was looking in the wrong column; the second amount should be 1.611/2.
• B) the more often the compounding, the higher the future value.
• C) there was an error in the table.
• D) when interest is compounded semiannually, more money must be deposited to have a desired ending balance.

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Definitions:

Cheques

Documents that order a bank to pay a specific amount of money from a person's account to the person in whose name the cheque has been issued.

Collection Float

The time span between when a check is deposited and when the funds are actually available in the account, reflecting processing time.

Checks

Checks are written, dated, and signed instruments that direct a bank to pay a specific sum of money to the bearer or a designated party.