Question

Future Value of an Annuity for Various Compounding Periods

Find the future values of the following ordinary annuities.

1. FV of $600 each 6 months for 9 years at a nominal rate of 12%, compounded semiannually. Do not round intermediate calculations. Round your answer to the nearest cent.

   $   

2. FV of $300 each 3 months for 9 years at a nominal rate of 12%, compounded quarterly. Do not round intermediate calculations. Round your answer to the nearest cent.

   $   

3. The annuities described in parts a and b have the same amount of money paid into them during the 9-year period, and both earn interest at the same nominal rate, yet the annuity in part b earns more than the one in part a over the 9 years. Why does this occur?

   -Select-The nominal deposits into the annuity in part (b) are greater than the nominal deposits into the annuity in part (a).The annuity in part (a) is compounded less frequently; therefore, more interest is earned on interest.The annuity in part (a) is compounded more frequently; therefore, more interest is earned on interest.The annuity in part (b) is compounded less frequently; therefore, more interest is earned on interest.The annuity in part (b) is compounded more frequently; therefore, more interest is earned on interest.Item 3

Answer 1