Question: You have received a post - dated check of $ 1 0 , 0 0 0 that is payable in 2 years for a project.

You have received a post

-

dated check of $

10, 000

that is payable in

2

years for a project. Because you need money right now you visit your local loan

-

shark, who is happy to cash

-

advance your check for the friendly discount rate of either

25 %

with annual compounding or

14 %

with monthly compounding. Which option should you choose?

2 .

You receive a cash flow of

50, 000

$ and you plan to deposit it for a year in a saving account that offers an annual interest rate of

16 %

with quarterly compounding. The teller asks you if you would consider a different account with annual compounding. For what interest rate would you be indifferent to switch to annual compounding?

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