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9. You are considering the following one-year investments: (i) Bank A promises to pay 8% on your deposit compounded annually. (ii) Bank B promises to

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9. You are considering the following one-year investments: (i) Bank A promises to pay 8% on your deposit compounded annually. (ii) Bank B promises to pay 8% on your deposit compounded daily. (iii) Bank C promises to pay 8% on your deposit compounded continuously. Compare the effective annual interest rate (EAR) on these investments. 10. Suppose Bank D compounds interest monthly. It wants to set its EAR equal to the EAR of Bank C in the previous problem. (a) What should Bank D choose as its stated annual interest rate (assuming monthly compounding)? (b) Say you deposite $100 in Bank D. How much interest will you earn one month later? 11. Suppose money invested in a hedge fund earns 1% per trading day. There are 250 trading days per year. Answer the following questions: (a) What will be your annual return on $100 invested in the fund if the manager allows you to reinvest in the fund the 1% you earn each day? (b) What will be your annual return assuming the manager puts all of your daily earnings into a zero-interest- bearing checking account and pays you everything earned at the end of the year? (c) Summarize when it is proper to "annualize" using APR (annual percentage rate) versus EAR (effective annual interest rate)

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