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stream, assuming that you can at best earn 5% on your investments?
c. What effect, if any, would a 7% rather than a 5% opportunity cost have on
your analysis? (Explain verbally.)
LG5 4–32 Changing compounding frequency Using annual, semiannual, and quarterly
compounding periods, for each of the following: (1) Calculate the future value if
$5,000 is initially deposited, and (2) determine the effective annual rate (EAR).
a. At 12% annual interest for 5 years.
b. At 16% annual interest for 6 years.
c. At 20% annual interest for 10 years. LG5 4–33 Compounding frequency, future value, and effective annual rates For each of
the cases in the following table:
a. Calculate the future value at the end of the specified deposit period.
b. Determine the effective annual rate, EAR.
c. Compare the nominal annual rate, i, to the effective annual rate, EAR. What
relationship exists between compounding frequency and the nominal and
effective annual rates. CHAPTER 4 Time Value of Money Compounding
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