Using the future value table, a student found that the future value amount of $1 for 5 years at an annual interest rate of 10% is 1.611.The student also observed that the future value of $1 for 5 years at 10% compounded semiannually is 1.629.This means that
A) the more often the compounding, the higher the future value.
B) the student was looking in the wrong column; the second amount should be 1.611/2.
C) there was an error in the table.
D) when interest is compounded semiannually, more money must be deposited to have a desired ending balance.

Question

Quizplus · Accepted Answer

This is because compounding more often (semiannually vs annually) allows for more frequent earning of interest on the initial deposit as well as on the accumulated interest. Thus, the future value will be higher with more frequent compounding.

Using the Future Value Table, a Student Found That the Future