An Account Paying Annual Compound Interest Was Opened with $1,000

question 33

Multiple Choice

An account paying annual compound interest was opened with $1,000 ten years ago. Today, the account balance is $1,500. If the same interest rate is offered on an account paying simple interest,
How much income would be earned over the same time period?

• A) $86.20
• B) $92.47
• C) $413.80
• D) $436.29
• E) $500.00

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Definitions:

Cost Method

An accounting method in which investments are recorded at their original purchase cost, without recognizing changes in market value.

Par Value

The nominal or face value of a bond, share of stock, or coupon as indicated on a certificate or instrument.

Par Value

The nominal or face value of a bond, stock, or coupon as stated by the issuer, which is typically not indicative of its market value.

Stated Value

A nominal value assigned by a company to its issued shares, which may be above or below the market value.