1. Using a suitable diagram, present and discuss the various types of interest rates. What is the effective annual interest rate for a nominal annual interest rate of 12% that is compounded (a) every quarter and (b) an infinite number of times in a year?
2. Explain at least two ways by which an agency could choose an appropriate interest rate for analyzing its system investments. If the current tax rate is 30%, the rate of return of government bonds is 6%, and 25% of investments are being drawn from consumers, calculate the social discount rate.