1. Assume there are investment products with:

• APR of 6%, where the interest rate will compound annually,

• APR of 5.6%, where the interest rate will compound semiannually,

• APR of 5.4%, where the interest rate will compound monthly, and

• APR of 5.3%, where the interest rate will compound daily.

  Which one of the above provides for the best investment option (i.e. with the highest Effective Annual Interest Rate), and why? Explain.

2. Assume you can either take a 20-year annuity that will first pay you $17,000 and increase by 2.4% each year, or a perpetuity that will pay you $15,500 the first year and increase by 2% each year. Assuming the interest rate of 11% and that the interest rate will compound annually, which one has a higher present value? Explain.