2
QuizMultiple Choice

Topic Test

Question 2 • Financial Math - MA2007

The same amount of principal is invested in different accounts earning the same interest rate. Which of the following accounts would have the greatest accumulated value at the end of one year?

Answer
A
An account earning no interest
B
An account earning simple interest
C
An account earning interest compounded annually
D
An account earning interest compounded daily

Explanation

With the same principal and interest rate, more frequent compounding produces a greater accumulated value over the year. Daily compounding adds interest to the balance throughout the year, so later interest can also earn interest. Therefore, the account earning interest compounded daily has the greatest value.

AI-written and checked against the verified answer.

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