The solution to this problem requires time value of money calculations.Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations.
For a given single sum invested at 8% for 4 years, how will the future value be affected if the compounding period is changed from quarterly to annually?
A) The future value will decrease.
B) The future value will increase.
C) The future value will stay the same.
D) There is not enough information to determine the impact.

Question

The solution to this problem requires time value of money calculations.Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations. ​
For a given single sum invested at 8% for 4 years, how will the future value be affected if the compounding period is changed from quarterly to annually?
A) The future value will decrease.
B) The future value will increase.
C) The future value will stay the same.
D) There is not enough information to determine the impact.

Quizplus · Accepted Answer

When the compounding period is changed from quarterly to annually, the frequency of compounding decreases, which results in a lower future value due to less frequent application of interest.

The Solution to This Problem Requires Time Value of Money