General Studies · Financial Management
Regarding the future value of an annuity, the compounding frequency has a direct impact on the terminal value of the investment. If an investor chooses to invest 10,000 annually at a rate of 12% per annum for 5 years, the total accumulation will be higher if interest is compounded quarterly rather than annually. Furthermore, the difference between an ordinary annuity and an annuity due remains constant in percentage terms regardless of the compounding frequency applied during the tenure. Evaluate these statements.
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The second statement is correct, but the first statement is incorrect.
- 2Both the first and second statements are incorrect.
- 3Both the first and second statements are correct.
- 4The first statement about compounding frequency is correct, but the second statement is incorrect.✓
Correct answer
The first statement about compounding frequency is correct, but the second statement is incorrect.
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