Problem 1) The principal plus interest at 10% compounded quarterly on a $15000 loan made 2.5 yrs ago is due in two years. The debtor is proposing to settle the debt by a payment of $5000 today and a a second payment in one year that will place the lender in an equivalent financial position, given that money can now only 6% compounded semiannually. what should be the amount of the 2nd payment? Also, demonstrate that the lender will be in the same financial position two years from now with either repayment alternative?
Problem 2) A bank offers a rate of 5% compounded semiannually on its 4 year GIC. What monthly compounded rate should the bank offer on 4 year GICs to make investors indifferent between the alternatives.