Assume that you are nearing graduation and that you have applied for a job at a local bank. As part of the banks evaluation (interview) process, you have been asked to take an assignment that covers several financial analysis techniques. The hiring decision depends on how you would answer the following questions:

Part I: TVM Analysis. The first section of the test addresses time value of money analysis. John and Mary are a young couple, who want to put their finance in order. Both the husband and the wife are 27 years ago and in stable employment. They want to manage their savings and earning to achieve a better return and reduce the risks. You want to help them in their financial planning by answering a series of questions as follows:

Will the future value be larger or smaller if we compound an initial amount more often than annuallyfor example, every six months, or semiannuallyholding the stated interest rate constant? Why? What is the effective annual rate for a simple rate of 12 percent, compounded semiannually? Compounded quarterly? Compounded daily?