Answer:
<em>All other variables held constant, investments paying simple interest have to pay significantly higher interest rates to earn the same amount of interest as an account earning compound interest.</em><u><em> </em></u><u>TRUE. </u>
This is a true statement because compound interest is based on the previous balance in addition to the interest earnings on the balance. It therefore accrues on a higher balance than simple interest which builds on the same amount of principal throughout. Simple interest would therefore need a higher rate to bridge this gap.
<em>Everything else held constant, an account that earns compound interest will grow more quickly than an otherwise identical account that earns simple interest.</em> <u>TRUE. </u>
An account earning compound interest would increase faster than an identical one using simple interest because compound interest is based on an accrued balance whilst simple interest does not change the balance it is based on.
<em>All other factors being equal, both the simple interest and the compound interest methods will accrue the same amount of earned interest by the end of the first year.</em> <u>TRUE. </u>
At the end of the first year, an assuming yearly compounding, both simple and compound interest will yield the same result because they would be based on the same principal amount.
The Information Processing Theory
views the human mind like a computer or information processor and postulates
that Humans are limited in how much information they can process at any given
time. This approach to the study of cognitive development stemmed out of the
American experimental tradition in psychology.
Answer:
the numbers are missing, so I looked for a similar question and found:
<em>Determine which is the better investment: 5.22% compounded semiannually or 5.24% compounded quarterly. Round your answers to 2 decimal places.</em>
- effective interest rate for semiannual compounding = (1 + 5.22%/2)² - 1 = 5.29%
- effective interest rate for quarterly compounding = (1 + 5.24%/4)⁴ - 1 = 5.34%
Compounded quarterly is a better investment than compounded semiannually
Explanation:
The shorter the compounding period, the more interests received (or paid if it is a loan) and the nominal interest rate is the same:
E.g. lets assume that the nominal interest rate is 10% per year:
- effective interest rate for annual compounding = 10%
- effective interest rate for semiannual compounding = (1 + 10%/2)² - 1 = 10.25%
- effective interest rate for quarterly compounding = (1 + 10%/4)⁴ - 1 = 10.38%
- effective interest rate for monthly compounding = (1 + 10%/12)¹² - 1 = 10.47%
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Answer:
Economies of scale is the cost advantage that arises with increased output of a product. Economies of scale arise because of the inverse relationship between the quantity produced and per-unit fixed costs; i.e. the greater the quantity of a good produced, the lower the per-unit fixed cost because these costs are spread out over a larger number of goods. Economies of scale may also reduce variable costs per unit because of operational efficiencies and synergies.