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Compounding Frequency, Time Value, and Effective Annual Rates For each of the cases in the table below: Calculate the future value at the end of
- Compounding Frequency, Time Value, and Effective Annual Rates For each of the cases in the table below:
- Calculate the future value at the end of the specified deposit period
- Determine the effective annual rate (EAR) for parts A, B, C, and D
- Compare the nominal rate, r, to the EAR. What relationship exists between compounding frequency and the nominal and effective rates?
| Part | Initial deposit | Nominal rate r | Compounding frequency | Deposit period (years) | FV | EAR |
| A | $5,000 | 6% | 2 | 5 | $6,719.58 | 6.09 |
| B | $75,000 | 10% | 4 | 3 | $80,693.33 | 10.38 |
| C | $2,000 | 5% | 12 | 10 | $3,294.02 | 5.12 |
| D | $2,000 | 5% | Continuous | 10 | $3,297.44 |
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Financial Management Principles and Application
Authors: Arthur J. Keown, J. William Petty, David F. Scott, Jr.
10th edition
