Suppose Randy plans to invest $1,000. He can earn an annual rate of 5% on Security A, while Security B has an effective annual rate of 10%. After 11 years, the compounded value of Security B should be somewhat less than double the compounded value of Security A.

Question

Quizplus · Accepted Answer

Using the compound interest formula, the compounded value of Security A after 11 years is:

A = 1000(1 + 0.05)^11 = $1,629.72

The compounded value of Security B after 11 years is:

B = 1000(1 + 0.10/12)^(12*11) = $2,134.99

So, B is indeed more than double A. However, the problem states that B should be "somewhat less" than double A, which is not the case. Therefore, the statement is false.

Suppose Randy Plans to Invest $1,000