The same amount of principal is invested in different accounts earning the same interest rate. Which of the following accounts would have the greatest accumulated value at the end of one year?

a. An account earning no interest

b. An account earning simple interest

c. An account earning interest compounded annually

d. An account earning interest compounded daily

D.) An account earning interest compounded daily.

This is the account that would have the greatest accumulated value at the end of one year.

Let us assume the following figures.

Principal = 1,000

Interest rate = 12% p. a.

Term 1 year

a) account earning no interest = 1,000

b) account earning simple interest

S. I. = 1,000 x 12% x 1 = 120

Balance = 1000 + 120 = 1,120

c) account earning interest compounded annually

FV = 1,000 (1+.12) ¹

FV = 1,000 (1.12)

FV = 1,120

d) account compounded daily

FV = 1,000 (1 +.12/365) ³⁶⁵

FV = 1,000 (1 + 0.00033) ³⁶⁵

FV = 1,000 (1.00033) ³⁶⁵

FV = 1,000 (1.128)

FV = 1,128