You plan to invest $2,100 in an individual retirement arrangement (IRA) today at a nominal annual rate of 9%, which is expected to apply to all future years.

A) How much will you have in the account at the end of 11 years if interest is compounded semi-annually?

B) How much will you have in the account at the end of 11 years if interest is compounded daily?

C) How much will you have in the account at the end of 11 years if interest is compounded continuously?

D) If the 9% nominal rate is compounded annually, what is the EAR?

E) If the 9% nominal rate is compounded semi-annually, what is the EAR?

F) If the 9% nominal rate is compounded daily, what is the EAR?

G) If the 9% nominal rate is compounded continuously, what is the EAR?

H) If interest is compounded continuously rather than annually, how much greater will your IRA balance be at the end of 11 years?

I) The more frequent the compounding the (enter either 'larger' or 'smaller') the future value. This result is shown in questions 9-12 above by the fact that the future value becomes (enter either 'larger' or 'smaller') as the compounding period moves from annually to continuously. Since the future value is (enter either 'larger' or 'smaller') for a given fixed amount invested, the effective return also (enter either 'increases' or 'decreases') directly with the frequency of compounding.