1.Your bank is offering you an account that will pay 20% interest in total for a two-year deposit. Determine the equivalent discount rate for a period length of
a. Six months.
b. One year.
c. One month.
2.Which do you prefer: a bank account that pays 5% per year (EAR) for three years or
a. An account that pays 2 1/2% every six months for three years?
b. An account that pays 7 1/2% every 18 months for three years?
c. An account that pays 1/2% per month for three years?
3.Many academic institutions offer a sabbatical policy. Every seven years a professor is given a year free of teaching and other administrative responsibilities at full pay. For a professor earning $70,000 per year who works for a total of 42 years, what is the present value of the amount she will earn while on sabbatical if the interest rate is 6% (EAR)?
4.You have found three investment choices for a one-year deposit: 10% APR compounded monthly, 10% APR compounded annually, and 9% APR compounded daily. Compute the EAR for each investment choice. (Assume that there are 365 days in the year.)