Suppose you receive $850 at the end of each year for the next four years.
a. If the interest rate is 6% per annum (interest paid annually), what is the present value of these cash flows?
b. What is the future value in four years of the present value you computed in part (a)?
c. Assume that no withdrawals are made from the savings account until the end of the fourth year. What is the interest component?
d. Compute the effective 4 years rate (total interest over 4 years). Hint: EFFECT function is not appropriate for this part as it is often used to compute an effective annual interest rate from a nominal interest rate.