1.You are considering moving your money to new bank offering a one-year CD that pays an 8% APR with monthly compounding. Your current bank’s manager offers to match the rate you have been offered. The account at your current bank would pay interest every six months. How much interest will you need to earn every six months to match the CD?
2.Your bank account pays interest with an EAR of 5%. What is the APR quote for this account based on semiannual compounding? What is the APR with monthly compounding?
3.Suppose the interest rate is 8% APR with monthly compounding. What is the present value of an annuity that pays $100 every six months for five years?
4.You can earn $50 in interest on a $1000 deposit for eight months. If the EAR is the same regardless of the length of the investment, how much interest will you earn on a $1000 deposit for
a. 6 months.
b. 1 year.
c. 1 1/2 years.