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Compound Interest, SMB-022 MC

The points on the graph below show the balance of an investment at the start of each quarter for a period of six years.

The same rate of interest applied for these six years.
 

   

In relation to this investment, which one of the following statements is true?

  1. interest is compounding annually and is credited annually
  2. interest is compounding annually and is credited quarterly
  3. simple interest is paid on the opening balance and is credited annually
  4. simple interest is paid on the opening balance and is credited quarterly
Show Answers Only

`A`

Show Worked Solution

`text{By elimination:}`

`text{From the graph, as balance increases after each year, interest is}`

`text{credited annually (eliminate B and D).}`

`text{The difference of the balances between successive years is increasing}`

`text{which indicates that interest is compounding (eliminate D).}`

`=>  A`