Under Which of the Following Conditions Will a Future Value

question 5

Multiple Choice

Under which of the following conditions will a future value calculated with simple interest exceed a future value calculated with compound interest at the same rate?

• A)the interest rate is very high.
• B)the investment period is very long.
• C)the compounding is annually.
• D)this is not possible with positive interest rates.

---

Definitions:

Opportunity Costs

The cost of forgoing the next best alternative when making a decision.

Sunk Costs

Costs that have already been incurred and cannot be recovered or altered, and thus should not affect future business decisions.

Side-Effect Costs

Unintended expenses or losses that occur as a result of business decisions, not directly related to the project in question.

Incremental Overhead

Additional overhead costs that are incurred when an organization increases its production volume or undertakes new activities.