The investment which would have the highest future value is; Choice B; Investment A pays $250 at the beginning of every year for the next 10 years (a total of 10 payments).
The correct question has options given as;
- a. Investment E pays $250 at the end of every year for the next 10 years (a total of 10 payments).
- b. Investment A pays $250 at the beginning of every year for the next 10 years (a total of 10 payments).
- c. Investment B pays $125 at the end of every 6-month period for the next 10 years (a total of 20 payments).
- d. Investment D pays $2,500 at the end of 10 years (just one payment).
- e. Investment C pays $125 at the beginning of every 6-month period for the next 10 years (a total of 20 payments).
Compound interest Situations
Choice B. in which case, Investment A pays $250 at the beginning of every year for the next 10 years (a total of 10 payments).
- This investment is of higher future value because the sum is received initially and it hence, gets one more compounding period than the same sum received at the end of the year as in Choice A.
- Additionally, this investment is of more future value than Choice C. that pays a sum after 6 months and loses out on compounding for first six months.
- It is also greater than Choice D. that pays a cumbersome amount of $2500 with no compounding, as well as Choice E. that pays a sum which is half of $250 at the beginning of the period.
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