1. A life insurance owes $50,000 in 5 years. To fund this outflow the insurer wishes to buy strips (zero coupon securities) that mature in 5 years. The strip pay 7% effective annual returns (EAR). How much must the insurer spend now to fully fund the outflow?
2. Bank A offers you a loan at 9.61% compounded 5 times a year. Bank B offers to loan you the same amount at 0.10% less than the rate offered by Bank A but compounded twice as often as the Bank A rate is. Which bank's loan should you accept?