Consider a Graph of Future Values of Two Investments of $1000

question 60

Multiple Choice

Consider a graph of future values of two investments of $1000. How would you expect the graphs of the future values to look if both investments earn 5% nominal rate, but investment 1 is compounded monthly and investment 2 is compounded semi-annually?

• A) Investment 1 is steeper and the graph is growing at a faster rate.
• B) Investment 2 is steeper and the graph is growing at a faster rate.
• C) Investment 1 is steeper and the graph is growing at a slower rate.
• D) Investment 2 is steeper and the graph is growing at a slower rate.
• E) The two graphs look the same as they are both compounding interest.

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Definitions:

Level of Significance

The threshold chosen by the researcher below which a p-value indicates that the observed result is statistically unlikely to have occurred by chance.

Expected Frequency

The predicted number of times an event will occur over a specified period in a statistical experiment.

Cramér's V

Cramér's V is a measure of association between two nominal variables, giving a value between 0 and 1 to indicate the strength of the relationship.

Cramér's V

A measure of association between two nominal variables, giving a value between 0 and 1.