Peter has HKS 1 million cash. Due to the prevailing high interest rate environment and high...

 

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Peter has HKS 1 million cash. Due to the prevailing high interest rate environment and high uncertainty in the global investment market, he decides to deposit the HKS1 million with the leading Universal Bank in Hong Kong for 1 year. Now, a branch manager of Universal Bank gives three rate quotations to him as follows: (1) 5.0% p.a. with annual compounding (2) 4.9% p.a. with quarterly compounding (3) 2.5% every 6 months As a financial adviser to Peter, you need to convert the above three rates into "Effective Annual Rates EAR" for comparison and then advise Peter which quotation is the best choice based on EAR. (10 marks) Peter has HKS 1 million cash. Due to the prevailing high interest rate environment and high uncertainty in the global investment market, he decides to deposit the HKS1 million with the leading Universal Bank in Hong Kong for 1 year. Now, a branch manager of Universal Bank gives three rate quotations to him as follows: (1) 5.0% p.a. with annual compounding (2) 4.9% p.a. with quarterly compounding (3) 2.5% every 6 months As a financial adviser to Peter, you need to convert the above three rates into "Effective Annual Rates EAR" for comparison and then advise Peter which quotation is the best choice based on EAR. (10 marks)

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To convert the nominal annual interest rate of 49 with quarterly compounding to an effective annual ... View the full answer