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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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    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 ...

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