Relationship between compounding frequency and future value

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Reference no: EM132058739

Comparing compounding periods Personal Finance Problem René Levin wishes to determine the future value at the end of 5 years of a $15800 deposit made today into an account paying a nominal annual rate of 11%.

a. Find the future value of René's deposit, assuming that interest is compounded (1) annually, (2) quarterly, (3) monthly, and (4) continously.

b. Compare your findings in part a, and use them to demonstrate the relationship between compounding frequency and future value.

c. What is the maximum future value obtainable given the $15800 deposit, the 5-year time period, and the 11% nominal annual rate? Use your findings in part a to explain.

a. (1) For annual compounding, the future value of René's deposit is (Round to the nearest cent.)

(2) For quarterly compounding, the future value of René's deposit is (Round to the nearest cent.)

(3) For monthly compounding, the future value of René's deposit is nothing. (Round to the nearest cent.)

(4) For continous? compounding, the future value of René's deposit is (Round to the nearest cent.)

b. Compare your findings in part a, and use them to demonstrate the relationship between compounding frequency and future value. (Select the best answer below.)

A. The more frequently interest is compunded, the lower the future value will be.

B. The more frequently interest is compunded, the higher the future value will be.

C. The frequency of the compounding does not affect the future value.

D. The less frequently interest is? compunded, the higher the future value will be.

c. The maximum future value obtainable given the $15800 deposit, the 5-year time period, and the 11% nominal annual rate is

Reference no: EM132058739

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