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Determine the equivalent discount rate for a period length

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Reference no: EM13489292

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.)

Reference no: EM13489292

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