To make sure that Mary has the skills to do the job, Sandra plans to give her a short project. As far as Sandra is concerned, the single most important concept in financial planning, whether personal or corporate, is discounted cash flow (DCF) analysis. She believes that if Mary has solid skills in this area, she will be able to succeed in her expanded role with minimal supervision. The basis for the project is an actual analysis that Sandra is currently working on for her clients. The clients have $18,000 to invest with a goal of accumulating enough money in six years to pay for their daugh- ter's first year of college at a prestigious Ivy League school, which is estimated to be $35,000. The clients have directed Sandra to evaluate only fixed interest securities (bonds, bank certificates of deposit, etc.) since they do not want to put their daughter's future at risk. One alternative is to invest the $18,000 in a First National Bank certificate of deposit (CD) cur- rently paying about 8.4 percent annual interest. CDs are available in maturities from six months to ten years, and interest can be handled in one of two ways: the buyer can receive interest payments every six months or reinvest the interest in the CD. In the latter case, the buyer receives no cash inter- est payments during the life of the CD, but receives the accumulated interest plus the principal amount at maturity. Since the goal is to accumulate funds over six years, all interest earned would be reinvested. However, in order to fully understand the issues involved, Sandra believes the analysis should start with a one-year example and then move to the six-year investment horizon. The clients are also interested in how interest levels and timing affect the investment. They realize that interest rates are based on the market and may change and would like to understand how the analysis changes if the interest rates were as low as 3.2 percent or as high as 16.8 percent. Although the clients have had a long-standing relationship with First National Bank, Sandra has dis- covered that Pacific Trust. Bay State Savings and Loan, and San Francisco Savings Bank offer CDs with the same nominal rate but with quarterly, daily, and continuous compounding respectively. She would like to use these CDs to explain the difference in compounding frequency relative to annual compounding