Compare the stated annual rate to the effective annual rate

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Reference no: EM131334423

Answer parts (a)-(c) for each of the following cases.

Case

Amount
of Initial
Deposit ($)

Stated Annual
Rate, r(%)

Compounding
Frequency, m
(times/year)

Deposit
Period
(years)

A

2,500

6

2

5

B

50,000

12

6

3

C

1,000

5

1

10

D

20,000

16

4

6

a. Calculate the future value at the end of the specified deposit period.

b. Determine the effective annual rate (EAR).

c. Compare the stated annual rate (r) to the effective annual rate (EAR). What relationship exists between compounding frequency and the stated and effective annual rates?

Reference no: EM131334423

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