4. 12

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 4.40%; 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. You want to invest $17,000 and are looking for safe investment options. Your bank is offering a certificate of deposit that pays a nominal rate of 4.00% that is compounded bimonthly (every two months). Your effective rate of return on this investment is Suppose you decide to deposit $17,000 into a savings account that pays a nominal rate of 5.20%, but interest is compounded daily. Based on a 365 day year, how much would you have in your account after nine months? (Hint: To calculate the number of days, divide the number of months by 12 and multiply by 365.) $17,320.32 $17,497.06 $17,673.80 $18,027.28