Task: Find the future vales of the following ordinary annuities:
1) FV of $400 paid each 6 months for 5 years at a nominal rate of 12 %, compounded semiannually.
2) FV of $200 paid each 3 months for 5 years at a nominal rate of 12%, compounded quarterly
3) These annuities receive the same amount of cash during the 5- year period and earn interest at the same nominal rate, yet the annuity inpart b ends up larger than one in part a, Why does this occur?
Effective versus nominal interest rate Bank A pays 4 % interest, compounded annually, on deposits, while Bank B pays 3.5 percent, compound daily
a. Based on the EAR or (EFF% which bank should you use?
b. Could the choice of bank influenced by the fact that you might want to withdraw your funds during the year as opposed to at the end of the year? Assume that your funds must be left on deposit during an entire compounding period in order to receive any interest?