Which of the Following Investments Would Have the Highest Future

question 5

Multiple Choice

Which of the following investments would have the highest future value at the end of 10 years? Assume that the effective annual rate for all investments is the same and is greater than zero.

• A) Investment A pays $250 at the beginning of every year for the next 10 years (a total of 10 payments).
• B) Investment B pays $125 at the end of every 6-month period for the next 10 years (a total of 20 payments).
• C) Investment C pays $125 at the beginning of every 6-month period for the next 10 years (a total of 20 payments).
• D) Investment D pays $2,500 at the end of 10 years (just one payment).

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Definitions:

Dividends Declared

Profits that a company's board of directors has decided to distribute to its shareholders, usually in the form of cash payments or additional shares.

Shareholders' Equity

The remaining value of a company's assets after liabilities are subtracted, which signifies the ownership stake of the shareholders.

Debits

An accounting entry that increases an asset or expense account, or decreases a liability or equity account.

Credits

Entries in accounting that increase liabilities or equity or decrease an asset or expense.