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Compute the effective annual interest rate

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Question - David just won $100000 lottery. He does not want to spend all the money and decided to invest it in securities market with two phases. In the first 5 years, he invest the amount in an asset the pays 7% interest, compounded annually. In the second phase of eight year he continue to invest the accumulated income in another asset with interest rate of 8% compounding quarterly.

a. Compute the effective annual interest rate (EAR) you got in the last eight years?

b. How much money he will have after 13 years?

c. After 5 years, how long will he have to wait more until his winnings are worth $200,000 if the rate 8% is compounding annually.

Reference no: EM132983691

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