Jim makes a deposit of $12,300 in a bank account. The deposit is to earn interest compounded annually at the rate of 9 percent for seven years. Required: a. How much will Jim have on deposit at the end of seven years? (Hint: What is future value?) Note: Do not round intermediate calculations and round your final answer to the nearest whole dollar amount. b. Assuming the deposit earned a 12 percent rate of interest compounded quarterly, how much would he have at the end of seven years? Note: Do not round intermediate calculations and round your final answer to the nearest whole dollar amount. c1. What is the effective annual yield for alternative (a) where interest is compounded annually? (Hint: Consider the future value of each deposit after one year only.) Note: Do not round intermediate calculations and round your final answer to 2 decimal places. c2. What is the effective annual yield for alternative (b) where interest is compounded quarterly? (Hint: Consider the future value of each deposit after one year only.) Note: Do not round intermediate calculations and round your final answer to 2 decimal places. c3. Which alternative is better? a. Future value-annual compounding b. Future value - quarterly compounding c1. Effective annual yield - annual compounding c2. Effective annual yield - quarterly compounding c3. Better alternative % %
Jim makes a deposit of $12,300 in a bank account. The deposit is to earn interest compounded annually at the rate of 9 percent for seven years. Required: a. How much will Jim have on deposit at the end of seven years? (Hint: What is future value?) Note: Do not round intermediate calculations and round your final answer to the nearest whole dollar amount. b. Assuming the deposit earned a 12 percent rate of interest compounded quarterly, how much would he have at the end of seven years? Note: Do not round intermediate calculations and round your final answer to the nearest whole dollar amount. c1. What is the effective annual yield for alternative (a) where interest is compounded annually? (Hint: Consider the future value of each deposit after one year only.) Note: Do not round intermediate calculations and round your final answer to 2 decimal places. c2. What is the effective annual yield for alternative (b) where interest is compounded quarterly? (Hint: Consider the future value of each deposit after one year only.) Note: Do not round intermediate calculations and round your final answer to 2 decimal places. c3. Which alternative is better? a. Future value-annual compounding b. Future value - quarterly compounding c1. Effective annual yield - annual compounding c2. Effective annual yield - quarterly compounding c3. Better alternative % %
Chapter4: Time Value Of Money
Section: Chapter Questions
Problem 2STP
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Question
Transcribed Image Text:Jim makes a deposit of $12,300 in a bank account. The deposit is to earn interest compounded annually at the rate of 9 percent for
seven years.
Required:
a. How much will Jim have on deposit at the end of seven years? (Hint: What is future value?)
Note: Do not round intermediate calculations and round your final answer to the nearest whole dollar amount.
b. Assuming the deposit earned a 12 percent rate of interest compounded quarterly, how much would he have at the end of seven
years?
Note: Do not round intermediate calculations and round your final answer to the nearest whole dollar amount.
c1. What is the effective annual yield for alternative (a) where interest is compounded annually? (Hint: Consider the future value of each
deposit after one year only.)
Note: Do not round intermediate calculations and round your final answer to 2 decimal places.
c2. What is the effective annual yield for alternative (b) where interest is compounded quarterly? (Hint: Consider the future value of
each deposit after one year only.)
Note: Do not round intermediate calculations and round your final answer to 2 decimal places.
c3. Which alternative is better?
a. Future value - annual compounding
b. Future value - quarterly compounding
c1.
annual yield annual compounding
c2. Effective annual yield - quarterly compounding
c3. Better alternative
%
%
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