Suppose Sally Smith plans to invest $1,000. She can earn an effective annual rate of 5% on Security A, while Security B has an effective annual rate of 12%. After 11 years, the compounded value of Security B should be more than twice the compounded value of Security A. (Ignore risk, and assume that compounding occurs annually.) True / False.

Question

Yasmine Montoya

Business

23 May, 23:37

Suppose Sally Smith plans to invest $1,000. She can earn an effective annual rate of 5% on Security A, while Security B has an effective annual rate of 12%. After 11 years, the compounded value of Security B should be more than twice the compounded value of Security A. (Ignore risk, and assume that compounding occurs annually.) True / False.

+3

Answers (1)

Know the Answer?

Rowe · Answer 1

"True"

Explanation:

First we will calculate the compounded values of the Sally Smith investment on Security A and Security B

Security A compounded value after 11 years=1,000 (1+5%) ^11

=$1,710.34

Security B compounded value after 11 years=1,000 (1+12%) ^11

=$3,478.55

Difference between Security B and A value=$3,478.55-$1,710.34

=$1,768.21

So based on the above calculations, the answer is "True"