Compound Interest Answers

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The same amount of principal is invested in different accounts earning the same interest rate. Which of the following accounts would have the greatest accumulated value at the end of one year?

A
An account earning no interest
B
An account earning simple interest
C
An account earning interest compounded annually
D
An account earning interest compounded daily
5

How much more interest is earned on an investment of $12,585 at 3.5% interest over 5 years if the interest is compounded annually rather than earning simple interest?

A
They are the same.
B
$159.65
C
$2,362.03
D
$12,744.65
8

Porsha calculates the amount of money she will have at the end of 6 years on a $5,000 investment earning 3.75% interest compounded quarterly. She writes the following expression: Which of the following statements about Porsha's expression is true?

Question illustration
A
Porsha's expression is correct.
B
Porsha's expression should have 1 + 0.009375 in the parentheses.
C
Porsha's expression should have an exponent of 6, not 24.
D
Porsha's expression should have both 1 + 0.009375 in the parentheses and an exponent of 6.
10

Certain investments compound interest at different intervals. What effect does the size of the compounding interval have on the yield of the investment?

A
Investments with smaller compounding intervals have a higher yield, because the interest earned is reinvested more quickly and thus gains compound interest more quickly.
B
Investments with smaller compounding intervals have a lower yield, because the interest earned is smaller at each interval.
C
The size of the compounding interval does not affect the total yearly interest percentage rate and only exists for bookkeeping purposes.
D
Investments with smaller compounding intervals have a lower yield, because the bank charges a small fee every time interest is compounded.
13

Approximately how much principal would need to be placed into an account earning 3.575% interest compounded quarterly so that it has an accumulated value of $68,000 at the end of 30 years?

A
$23,706
B
$23,377
C
$52,069
D
$58,944
14

Choose the proper rationale. “In the compound interest equation, time (the variable t) has the biggest effect on the outcome because...”

A
Time is usually the largest number in the equation.
B
Time uses the largest units (years are bigger than dollars or percentages).
C
Time is an exponent while the other units are factors.
D
Time is the independent variable.
16

An investment of $7,650 earns interest at the rate of 5% and is compounded quarterly. What is the accumulated value of the investment at the end of 9 years?

A
$11,964.17
B
$11,867.66
C
$9,338.56
D
$8,554.94
19

Certain investments compound interest at different intervals. What effect does the size of the compounding interval have on the yield of the investment?

A
Investments with smaller compounding intervals have a higher yield, because the interest earned is reinvested more quickly and thus gains compound interest more quickly.
B
Investments with smaller compounding intervals have a lower yield, because the interest earned is smaller at each interval.
C
The size of the compounding interval does not affect the total yearly interest percentage rate and only exists for bookkeeping purposes.
D
Investments with smaller compounding intervals have a lower yield, because the bank charges a small fee every time interest is compounded.
20

An investment of $6,599.20 earns 4.2% interest compounded monthly over 7 years. Approximately how much interest is earned on the investment?

A
$2,250.96
B
$4,308.21
C
$6,762.59
D
$8,850.20

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