1. Calculate the effective annual rate associated with a 7 percent stated rate that is compounded semi-annually.

a. 16.5%

b. 10%

c. 7.12%

d. 9.31%

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2. A contract specifies that you will receive $1000 in one year, $1040 in two years, and annual payments that continue to grow at a 4% rate forever. If the appropriate discount rate is 7.5%, what is the value of this contract?

a. $28571.4

b. $28333.33

c. $22222.22

d. $25111.11