Assume that you deposit $10,000 today into an account paying 6% annual interest and leave it on deposit for exactly 8 years.

a. How much will be in the account at the end of 8 years in interest is compounded:

1. annually?

2. semiannually?

3. monthly?

4. continuously?

b. Calculate the effective annual rate (EAR) for a (1) through a (4) above.

c. Based on your findings in parts a and b, what is the general relationship between the frequency of compounding and EAR?