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?

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