Suppose Sally Smith plans to invest $1,000. She 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 more 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)
True
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 TRUE |
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