Question: 2.(a) What is the effective annual rate for a one year investment paying 4% simple interest quarterly (16% annual nominal rate compounded quarterly). What does

2.(a) What is the effective annual rate for a one year investment paying 4% simple interest quarterly (16% annual nominal rate compounded quarterly). What does this assume about your ability to reinvest the interest receipts from quarters 1, 2, and 3?

(b) What is the effective annual rate if reinvestment opportunity (the yield curve) is as follows. (Assume simple interest on the reinvestments) Percent % 10 8 6 + 2 0 3 mos. 6 mos.

Percent % 10 8 6 + 2 0 3 mos. 6 mos. 9 mos. 12 mos.

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