PROBLEM 24 Frequency of compounding affects both future and present values of cash flows. While we usually start out assuming annual periods interest and inflation typically compound more frequently. Thus we must always concern ourselves with the effective annual rate (EAR): Rate % t(days) EAR Annual Semi-annual Monthly Daily Continuous 10% 10% 10% 10% 10% 2 12 365 10.0% 10.3% 10.5% 10.5% 10.5% n/a PROBLEM 24 Frequency of compounding affects both future and present values of cash flows. While we usually start out assuming annual periods interest and inflation typically compound more frequently. Thus we must always concern ourselves with the effective annual rate (EAR): Rate % t(days) EAR Annual Semi-annual Monthly Daily Continuous 10% 10% 10% 10% 10% 2 12 365 10.0% 10.3% 10.5% 10.5% 10.5% n/a