Consider two investment opportunities Opportunity 1: It pays an investor an annual 20% nominal interest rate,...

Transcribed Image Text:

Consider two investment opportunities Opportunity 1: It pays an investor an annual 20% nominal interest rate, compounded semi-annually (2 times per year) Opportunity 2: It pays an investor an annual 19% nominal interest rate, compounded monthly (12 times per year) Opportunity 3: It pays investors a different annual nominal interest rate, but compounds weekly (52 times per year) Answer the following questions: What is the effective annual rate of the first investment opportunity? What is the effective annual rate of the second investment opportunity? What is the nominal rate of opportunity 3 that makes you indifferent between opportunities 2 and 3? Consider two investment opportunities Opportunity 1: It pays an investor an annual 20% nominal interest rate, compounded semi-annually (2 times per year) Opportunity 2: It pays an investor an annual 19% nominal interest rate, compounded monthly (12 times per year) Opportunity 3: It pays investors a different annual nominal interest rate, but compounds weekly (52 times per year) Answer the following questions: What is the effective annual rate of the first investment opportunity? What is the effective annual rate of the second investment opportunity? What is the nominal rate of opportunity 3 that makes you indifferent between opportunities 2 and 3?

Answer rating: 100% (QA)

SureI can help you with that The effective annual rate EAR is the true rate of return on an investme... View the full answer