Which of the Following Statements Is True

question 73

Multiple Choice

Which of the following statements is true?

• A) Regardless of the value of the interest rate, increasing the compounding frequency will decrease the future value.
• B) Regardless of the value of the interest rate, increasing the compounding frequency will increase the future value.
• C) There is a relationship between the future value of investment and the effect of compounding frequency. At high interest rates, increases in compounding frequency will decrease the future value.
• D) There is a relationship between the future value of investment and the effect of compounding frequency. At low interest rates, increases in compounding frequency will decrease the future value.

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Definitions:

Perpetuity

A type of financial instrument that pays a fixed sum to the holder indefinitely, without a maturity date.

Yearly Payment

An amount of money that is paid once every year, often related to loans, leases, or other financial agreements.

Interest Rate

The amount charged by lenders to borrowers for the use of assets, expressed as a percentage of the principal.

Coupon Bond

A bond that entitles the holder to receive periodic interest payments (coupons) and the principal back at maturity.