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Janet Boyle intends to deposit $300 per year in a credit union for the next 10 years, and the credit union pays an annual interest rate of 8%.
a. Determine the future value that Janet will have at the end of 10 years, given that end-of- period deposits are made and no interest is withdrawn, if
(1) $300 is deposited annually and the credit union pays interest annually.
(2) $150 is deposited semi annually and the credit union pays interest semi annually.
(3) $75 is deposited quarterly and the credit union pays interest quarterly.
b. Use your findings in part a to discuss the effect of more frequent deposits and compounding of interest on the future value of an annuity.
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Draw a time line to show the cash flows of the project and compute the project's payback period, net present value (NPV), profitability index (PI), and internal rate of return (IRR).
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