Question

Phillippe invested $1,000 ten years ago and expected to have $1,800 today He has neither added nor withdrawn any money since his initial investment. All interest was reinvested and compounded annually. As it turns out, he only has $1,680 in his account today. Which one of the following must be true?

Answer 1

Answer:

The interest paid on loan was at floating rate which means that the investor earning was lower because of lower interest rate than the interest rate he was expecting.

Explanation:

Because the bond was dependent on the floating rate in the market. The borrower kept paying the investor at the floating rate not at the fixed rate which would had increased its investment worth to $1800. As $1600 is less than $1800 so the interest rate agreed was floating rate interest.