Compounding frequency, time value, and effective annual rates For each of the cases in the following table, a. Calculate the future value at the end of the specified deposit period. b. Determine the effective annual rate, EAR. c. Compare the nominal annual rate, r, to the effective annual rate, EAR. What relationship exists between compounding frequency and the nominal and effective annual rates? a. The future value of case A at the end of year 5 is $. (Round to the nearest cent.) The future value of case B at the end of year 5 is $. (Round to the nearest cent.) The future value of case C at the end of year 12 is $ (Round to the nearest cent.) The future value of case D at the end of year 8 is $ (Round to the nearest cent.) b. The effective annual rate of case Ais %. (Round to two decimal places.) The effective annual rate of case B is %. (Round to two decimal places.) The effective annual rate of case C is %. (Round to two decimal places.) The effective annual rate of case D is %. (Round to two decimal places.) The effective annual rate of case Dis %. (Round to two decimal places.) c. What relationship exists between compounding frequency and the nominal and effective annual rates? (Select the best answer below.) O The effective rates of interest decrease relative to the stated nominal rate with increasing compounding frequency. O The stated nominal rate rises relative to the effective rate of interest with increasing compounding frequency. O The effective rates of interest rise relative to the stated nominal rate with increasing compounding frequency. 0 The stated nominal rate increases relative to the effective rate of interest with increasing compounding frequency. m Case B D Amount of initial deposit $2,400 $52,000 $1,000 $18,000 Nominal annual rate, 7% 14% 6% 17% Compounding frequency, Deposit period (times/year) (years) 2 5 4 5 2 12 3 8