Jim makes a deposit of $12,000 in a bank account. The deposit is to earn interest annually at the rate of 9 percent for seven years.

a. How much will Jim have on deposit at the end of seven years?

b. Assuming the deposit earned a 9 percent rate of interest compounded quarterly, how much would he have at the end of seven years?

c. In comparing

(a) and (b), what are the respective effective annual yields? (Hint: Consider the value of each deposit after one year only.) Which altemative is better?

AppendixLO1