60.1K

Verified Solution

Link Copied!

Compounding frequency, time value, and effective annual rates For each of the cases in the following table, a. Calculate the future value at the end of the specified deposit period. b. Determine the effective annual rate, EAR. c. Compare the nominal annual rate, r, to the effective annual rate, EAR. What relationship exists between compounding frequency and the nominal and effective annual rates? a. The future value of case A at the end of year 7 is $ . (Round to the nearest cent.) The future value of case B at the end of year 5 is $ . (Round to the nearest cent.) The future value of case C at the end of year11 is $ . (Round to the nearest cent.) The future value of case D at the end of year 6 is $ . (Round to the nearest cent.) b. The effective annual rate of case A is %. (Round to two decimal places.) The effective annual rate of case B is %. (Round to two decimal places.) The effective annual rate of case C is. %. (Round to two decimal places.) The effective annual rate of case Dis %. (Round to two decimal places.) c. What relationship exists between compounding frequency and the nominal and effective annual rates? (Select the best answer below.) o The stated nominal rate rises relative to the effective rate of interest with increasing compounding frequency. The stated nominal rate increases relative to the effective rate of interest with increasing compounding frequency. (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Compounding frequency, m (times/year) Deposit period (years) Case Amount of initial deposit $2,500 $52,000 $1,000 $18,000 Nominal annual rate, r 7% 13% 5% 15% W NOW

Answer & Explanation Solved by verified expert

See Answer