Jim makes a deposit of $13,000 in a bank account. The deposit is to earn interest compounded annually at the rate of 8 percent for seven years.

a. How much will Jim have on deposit at the end of seven years? (Hint: What is future value?)

b. Assuming the deposit earned a 11 percent rate of interest compounded quarterly, how much would he have at the end of seven years?

c1. What is the effective annual yield for alternative (a) where interest is compounded annually? (Hint: Consider the future value of each deposit after one year only.)

c2. What is the effective annual yield for alternative (b) where interest is compounded quarterly? (Hint: Consider the future value of each deposit after one year only.)

c3. Which alternative is better?