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Assume that you deposit $10,000 today into an account paying 6 percent annual interest and leave it on deposit for exactly eight years.

a. How much will be in the account at the end of eight years if interest is compounded
1. annually?
2. semiannually?
3. monthly?
4. continuously?

b. Calculate the effective annual rate (EAR) for (1) through (4) above.

c. Based on your findings in parts (a) and (b), what is the general relationship between the frequency of compounding and EAR?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92088069

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