Which one of the following interest rates will produce the largest value at the end of ten years given a lump sum investment of $5,000?
A) 5.5%, compounded annually
B) 5.5%, simple interest
C) 6.0%, simple interest
D) 6.0%, compounded annually
E) 6.0%, compounded semi-annually

Question

Quizplus · Accepted Answer

Compounding more frequently (semi-annually in this case) at the same interest rate results in a higher effective interest rate due to the effect of compound interest. Therefore, among the options given, 6.0% compounded semi-annually will produce the largest value at the end of ten years.

Which One of the Following Interest Rates Will Produce the Largest