All else constant,the future value of an investment will increase if:
A)the investment involves more risk.
B)the investment is compounded for fewer years.
C)the investment is compounded at a higher interest rate.
D)both B & C.

Question

Quizplus · Accepted Answer

The future value of an investment is directly proportional to the interest rate at which it is compounded over time. So, if the investment is compounded at a higher interest rate, its future value will increase. On the other hand, if the investment is compounded for fewer years, the overall period in which an investment can earn a return is shortened, so the future value will decrease. Therefore, option C is the best choice because it directly affects the future value of an investment. Option A is incorrect because increasing risk may also increase returns, but also the likelihood of losses. Option B is incorrect because it would decrease the future value of an investment. Option D is incorrect because although compounding for fewer years may increase the rate at which the investment grows, it will likely decrease the overall future value due to the shortened investment period.

All Else Constant,the Future Value of an Investment Will Increase