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    Return Compounded Monthly

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    You want to invest $5,000 for 3 years. Would you prefer to earn a 6 percent rate of return compounded monthly or a 6 percent rate of return compounded annually? Justify your answer.

    All else constant, explain why the present value decreases as the discount rate increases.

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    Solution Preview

    You would want to invest in 6% rate of interest compounded monthly rather than compounded annually --- compounding monthly gives you interest at the monthly level, and then on the next cycle ...

    Solution Summary

    This Solution contains calculations to aid you in understanding the Solution to this question.

    $2.19