Which of the Following Best Describes the Difference Between a Simple

question 10

Multiple Choice

Which of the following best describes the difference between a simple financial instrument and a compound financial instrument?

• A) A simple financial instrument consists of only one financial asset/financial liability/equity instrument while a compound financial instrument contains both a liability and an equity element
• B) A simple financial instrument accrues interest using simple interest formula while the compound financial instrument calculates interest on the compound formula
• C) The fair value of a simple instrument is calculated quarterly while the fair value of a compound instrument accrues daily
• D) A simple financial instrument has a less complex fee structure

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Definitions:

Expected Rate

The anticipated return on an investment, calculated based on historical data or statistical models.

Total Investment

The sum of all expenditures made by a company or individual for acquiring or improving fixed assets, financial assets, and other business interests.

Interest Rate

The cost of borrowing money, typically expressed as a percentage of the principal, charged by lenders to borrowers for the use of funds.

Expected Rate

An anticipated rate of return or growth, often used in the context of investments or economic forecasts.