Complete the tables and answer the questions.
a. Single Sum Rate Time Compounding Frequency Interest Factor Future Value
1,000 12% 2 years Annual __________ _________
1,000 12% 2 years Semiannual ___________ __________
1,000 12% 2 years Quarterly ___________ __________
1,000 12% 2 years Monthly ___________ __________
b. Summarize the effect of changing the compounding period on the future value of a single sum. Explain why this effect appears resonable.
c. What effect do you think that changing the compounding period of an annuity would have on its future value? Explain why you think this.
d. Single Sum Rate Time Compounding Frequency Interest Factor Future Value
1,000 12% 2 years Annual __________ _________
1,000 12% 2 years Semiannual ___________ __________
1,000 12% 2 years Quarterly ___________ __________
1,000 12% 2 years Monthly ___________ __________
e. Summarize the effect of changing the compounding period on the present value of a single sum. Explain why this effect appears reasonable.
f. What effect do you think that changing the compounding period of an annuity would have on its present value? Explain why you think this.