If interest is compounded semi-annually rather than annually,then:
A) future values and present values will both be higher.
B) futures values and present values will both be lower.
C) future values will be lower and present values will be higher.
D) Future values will be higher and present values will be lower.

Question

Quizplus · Accepted Answer

If interest is compounded semi-annually instead of annually, the compounding effect will occur twice a year instead of once. This means that interest will be earned on interest more frequently, resulting in a higher future value at the end of the term. However, this also means that the present value will be lower because the compounding effect is spread over a longer period. Therefore, the correct answer is that future values will be higher, and present values will be lower.

If Interest Is Compounded Semi-Annually Rather Than Annually,then