Contemporary Financial Management, Loose-leaf Version
Contemporary Financial Management, Loose-leaf Version
14th Edition
ISBN: 9781337090636
Author: R. Charles Moyer, James R. McGuigan, Ramesh P. Rao
Publisher: South-Western College Pub
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Chapter 5, Problem 1QTD
Summary Introduction

To discuss: Whether person X would prefer the proceeds from a 2 year investment pays 5% simple interest or from one paying 5% compound interest.

Expert Solution & Answer
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Explanation of Solution

Person X views that, he should prefer the investment that pays 5% compound interest annually, because in case of compound interest, he will receive interest not only interest on principal amount but also interest on interest for previous years.

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