(a) Suppose you put 1500 in a bank account with nominal interest rate 1.2% and make...

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(a) Suppose you put £1500 in a bank account with nominal interest rate 1.2% and make no withdrawals. How much money will be in the account 6 years later if the interest is compounded monthly? State your answer to the nearest pence. (b) Suppose a bank account has a nominal interest rate of 4.4% compounded semi-annually. Find the effective interest rate reff to three significant figures. (c) Suppose that for time t≥ 0 the instantaneous interest rate of a bank account is given by r(t) = 0.016 +0.01te-t². (i) Determine the yield curve r(t). (ii) Determine lim F(t). t-∞0 (d) Suppose that Bank A offers deposits and loans continuously compounded with discount factor DA (t) and that Bank B offers deposits and loans continuously compounded with discount factor DB (t). Moreover, suppose that DA (1) DA (2) > DB(3). Show that an arbitrage opportunity exists. [1 (a) Suppose you put £1500 in a bank account with nominal interest rate 1.2% and make no withdrawals. How much money will be in the account 6 years later if the interest is compounded monthly? State your answer to the nearest pence. (b) Suppose a bank account has a nominal interest rate of 4.4% compounded semi-annually. Find the effective interest rate reff to three significant figures. (c) Suppose that for time t≥ 0 the instantaneous interest rate of a bank account is given by r(t) = 0.016 +0.01te-t². (i) Determine the yield curve r(t). (ii) Determine lim F(t). t-∞0 (d) Suppose that Bank A offers deposits and loans continuously compounded with discount factor DA (t) and that Bank B offers deposits and loans continuously compounded with discount factor DB (t). Moreover, suppose that DA (1) DA (2) > DB(3). Show that an arbitrage opportunity exists. [1