Jim makes a deposit of $12,000 in a bank account. The deposit is to earn interest compounded annually at the rate of 6 percent for seven years.a. How much will Jim have on deposit at the end of seven years? (Hint: What is future value?)b. Assuming the deposit earned a 9 percent rate of interest compounded quarterly, how much would he have at the end of seven years?c. In comparing (a) and (b), what are the respective effective annual yields? (Hint: Consider the future value of each deposit after one year only.) Which alternative is better?
Jim makes a deposit of $12,000 in a bank account. The deposit is to earn interest compounded annually at the rate of 6 percent for seven years.a. How much will Jim have on deposit at the end of seven years? (Hint: What is future value?)b. Assuming the deposit earned a 9 percent rate of interest compounded quarterly, how much would he have at the end of seven years?c. In comparing (a) and (b), what are the respective effective annual yields? (Hint: Consider the future value of each deposit after one year only.) Which alternative is better?
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 6MC: You want to invest $8,000 at an annual Interest rate of 8% that compounds annually for 12 years....
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Jim makes a deposit of $12,000 in a bank account. The deposit is to earn interest compounded annually at the rate of 6 percent for seven years.
a. How much will Jim have on deposit at the end of seven years? (Hint: What is
b. Assuming the deposit earned a 9 percent rate of interest compounded quarterly, how much would he have at the end of seven years?
c. In comparing (a) and (b), what are the respective effective annual yields? (Hint: Consider the future value of each deposit after one year only.) Which alternative is better?
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