12. Nonannual compounding period The number of compounding periods in one year is called compounding...
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12. Nonannual compounding period The number of compounding periods in one year is called compounding frequency. The compounding frequency offects both the present and future values of cash flows. An investor can invest money with a particular bank and earn a stated interest rate of 15.40%; however, interest will be compounded quarterly. What are the nominal, periodic, and effective interest rates for this investment opportunity? Interest Rates Nominal rote Periodic rate Effective annual rate You want to invest $11,000 and are looking for sale investment options. Your bank is offering you a certificate of deposit that pays a nominal rate of 14% that is compounded timonthly (every two months) What is the effective rate of return that you will eam from this investiment? 14.721% @ 15.0204 14.928% 14.843% Suppose you decide to deposit $11,000 in a savings account that pays a nominal rate of 6%, but interest is compounded daily. Based on a 365-day year, how much would you have in the account after 12 months? (Hint: To calculate the number of days, divide the number of months by 12 and multiply by 365) $12,264.16 $11.446.35 $11,680.15 $11,913.75
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