Suppose Randy Jones plans to invest $1,000. He can earn an effective annual rate of 5% on Security A, while Security B has an effective annual rate of 12%. After 11 years, the compounded value of Security B should be somewhat less than twice the compounded value of Security A. (Ignore risk, and assume that compounding occurs annually.)
Answer the following statement true (T) or false (F)
False
Rationale: Work out the numbers with a calculator:
| PV | 1000 | FVA = | $1,710.34 |
| Rate on A | 5% | 2 × FVA = | $3,420.68 |
| Rate on B | 12% | FVB = | $3,478.55 |
| Years | 11 | FVB> 2 × FVA, so FALSE |
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