A bank offers the below certificates of deposit:

Term in years Nominal annual interest rate (convertible semi-annually)

15%

2 6%

4 6,2%

The bank does not allow early withdrawal. Certificates expire on end of term. Over the next five years the bank will continue to offer these certificates of deposit with the same terms and interest rates. An investor initially deposits $1,000 in the bank and withdraws both the principal and interest at the end of five years.

Required:

Calculate the maximum annual effective interest rate that the investor can earn during the 5-year period.

Answer rating: 100% (QA)

SOLUTION To maximize the annual effective interest rate earned during the 5year period the investor ... View the full answer