Consider the following cases:

Case

Amount of Initial Deposit ($)

Stated Annual Rate, r (%)

Compounding Frequency, m (times/year)

Deposit Period (years)

A

2,500

6

2

5

B

50,000

12

6

3

C

1,000

5

1

10

D

20,000

16

4

6

a. Calculate the future value at the end of the specified deposit period. (2 POINTS)

b. Determine the effective annual rate (EAR). (2 POINTS)

c. Compare the stated annual rate (r) to the effective annual rate (EAR). What relationship exists between compounding frequency and the stated and effective annual rates?(1