Your mother is trying to choose one of the following bank CDs to deposit $10,000. Which will have the highest future value if she plans to invest for three years?
A) 3.50% compounded daily
B) 3.25% compounded monthly
C) 3.40% compounded quarterly
D) 3.75% compounded annually

Question

Quizplus · Accepted Answer

The higher the compounding frequency, the higher the future value of the investment. Therefore, option D, which compounds annually at the highest interest rate of 3.75%, will have the highest future value after three years. The other options have lower interest rates and/or lower compounding frequencies, which will result in lower future values.

Your Mother Is Trying to Choose One of the Following