12. Non annual compounding period

The number of compounding periods in one year is called compounding frequency. The compounding frequency affects 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 11.00%; however, interest will be compounded quarterly.

Complete the following table by computing the nominal (or stated), periodic, and effective interest rates for this investment opportunity.

Interest Rates	Value
Nominal rate	11.00%
Periodic rate	???
Effective annual rate	???

You want to invest $15,000 and are looking for safe investment options. Your bank is offering a certificate of deposit that pays a nominal rate of 10.00% that is compounded daily. Your effective rate of return on this investment is (10.52%, 10.43%, 10.38%, 10.40%)

Another bank is also offering favorable terms, so Clancy decides to take a loan of $15,000 from this bank. He signs the loan contract at 13.00% compounded daily for three months. Based on a 365-day year, what is the total amount that Clancy owes the bank at the end of the loans term? (Hint: To calculate the number of days, divide the number of months by 12 and multiply by 365.)

$15,495.19

$16,037.52

$16,115.00

$16,269.95