Consider a graph of future values of two investments of $1000. How would you expect the graphs of the future values to look if both investments earn 5% nominal rate, but investment 1 is compounded monthly and investment 2 is compounded semi-annually?
A) Investment 1 is steeper and the graph is growing at a faster rate.
B) Investment 2 is steeper and the graph is growing at a faster rate.
C) Investment 1 is steeper and the graph is growing at a slower rate.
D) Investment 2 is steeper and the graph is growing at a slower rate.
E) The two graphs look the same as they are both compounding interest.

Question

Quizplus · Accepted Answer

The graph of Investment 1, which is compounded monthly, will grow at a faster rate than Investment 2, which is compounded semi-annually, due to the effects of more frequent compounding periods within a year.

Consider a Graph of Future Values of Two Investments of $1000