Interest rate is positive value and interest is reinvested

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1. Which one of the following will increase the present value of a lump sum future amount? Assume the interest rate is a positive value and all interest is reinvested.

A. Increase in the time period

B. Increase in the interest rate

C. Decrease in the future value

D. Decrease in the interest rate

2. Ben deposits $2,500 into an account paying 5 percent interest, compounded annually. At the same time, Mike deposits $2,500 into an account paying 2.5 percent interest, compounded annually. At the end of five years:

A. Ben will have earned somewhere between 1 and 2 times the amount of interest that Mike earned.

B. Both Ben and Mike will have earned the same amount of interest.

C. Ben will have earned exactly twice the amount of interest as Mike earned.

D. Ben will have earned more than twice the amount of interest that Mike earned.

Reference no: EM132005747

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