CFA Practice Question

There are 410 practice questions for this study session.

CFA Practice Question

You are choosing between investments offered by two different banks. One promises a return of 10% for three years in simple interest while the other offers a return of 10% for three years in compound interest. You should ______.

A. choose the simple interest option because both have the same basic interest rate
B. choose the compound interest option because it provides a higher return than the simple interest option
C. choose the compound interest option only if the compounding is for monthly periods
D. choose the simple interest option only if compounding occurs more than once a year
E. choose the compound interest option only if you are investing less than $5,000
Correct Answer: B

User Contributed Comments 3

User Comment
mbowa The higher the compounding periods, the higher the rate of return, it applies in this case
msk500 I think it because with compounding, you earn interest on interest, while as with simple interest, you only earn interest on the principal amount invested.
lordcomas one time interest vs. (x) times interest over interest.
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