John decide to save to buy a car in three years time. He will invest a fixed sum into

a threeyear fixed deposit savings account that pays interest at pa how much would he need to invest today to have N$ at the end of the threeyear period if interest is paid continuously?

b

Calculate the price of a bond with these characteristics. In each case, assume the coupon rate is coupon payments are made every six months twice per year and the par value maturity payment of the bond is

i years to maturity ; market interest rate

ii years to maturity ; market interest rate

c

In an advertisement, one of the local banks announced that a savings account for N$ or more would pay a nominal flat rate pa of capitalized monthly. What is the effective rate of interest pa earned on any deposit in this account?

d

Suppose the cost of the investment today is N$ and in five years time the return is N$ Calculate the annual internal rate of return compounded monthly on this investment.