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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