Determine the effective annual rat

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Reference no: EM131881444

Consider the following cases:

Amount of		Compounding
	Initial	Stated Annual	Frequency, m	Deposit
Case	Deposit ($)	Rate, r (%)	(times/year)	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).

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: EM131881444

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