Stephen has $2,400 to invest. Which one of the following investment options will produce the largest future value for him?
A) 7% simple interest for 10 years
B) 7%, compounded annually for 10 years
C) 7%, compounded monthly for 12 years
D) 7%, compounded annually for 12 years
E) 7, simple interest for 12 years

Question

Quizplus · Accepted Answer

Compound interest, especially when compounded more frequently (such as monthly), generally yields a higher future value than simple interest or annual compounding over the same or a longer period. Option C, with a 7% interest rate compounded monthly for 12 years, will produce the largest future value due to the effect of compounding interest more frequently over a longer period.

Stephen Has $2,400 to Invest