You Have $500 That You Would Like to Invest

question 143

Multiple Choice

You have $500 that you would like to invest. You have two choices: Savings account A which earns 8% compounded annually, or savings account B which earns 7.75% compounded semi-annually. Which would you choose and why?

• A) A, because it has a higher effective annual rate.
• B) A, because the future value in one year is lower.
• C) B, because it has a higher effective annual rate.
• D) B, because the future value in one year is lower.
• E) B, because it has the higher quoted rate.

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Definitions:

Accrued Interest

Interest that has been earned but not yet paid or received.

Accrued Interest

Accrued interest refers to the interest that has accumulated on a bond or loan since the last interest payment was made.

360-Day Year

A financial concept that simplifies the calculation of interest over periods when the actual number of days in a year is considered to be 360.

Commission

A fee or percentage of a transaction paid to an agent or employee for facilitating or completing a sale.