1.The effective annual interest rate (EAR) and the future value of a 1,000 investment under the following terms

1. (i)8% compounded annually for 4 years
2. (ii)5% compounded monthly for 3 years

(iii) 10% compounded daily for 2 years

2.

(i) You are looking into an investment that will pay you 27,000 per year for the next 10 years. If you require an 8% return, what is the most you should pay for this investment

(ii) Sylvia has been offered an investment that will double her money in 10 years. What rate of return is she being offered?

1. A corporate bond has a 10% coupon rate and a $1,000 face value. Interest is paid semi-annually and the bond has 20 years to maturity. If investors require a 12% yield, what is the bond's value?
2. The annual rate of inflation is a constant 4%. The annual real rate of interest is a constant 2%. Nominal cash flows at the end of the next four years are 800, 1,200, 750 and 1,500 respectively. Calculate the corresponding real cash flows and the present value of their sum using the real rate of interest.