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(a) (i) Describe the difference between the present value and the future value of 3] 1. an investment (ii) Bank of Ireland advertises annual rates
(a) (i) Describe the difference between the present value and the future value of 3] 1. an investment (ii) Bank of Ireland advertises annual rates of 2.5%, 3.125%, 3.75%, 4.375%, and 5% in the successive 5 years of its five-year compound-interest deposit. At the same time, the bank sells a fixed-rate five-year compound-interest deposit yielding 3.97% compounded quarterly. If you have $2000 to invest [4] today, which of the two deposits are you going to choose? Why? (iii) You have to pay for your master degree in three years from now. The degree costs $17000 If an investment can earn 3% compounded monthly, what amount must you invest now in order to accumulate the needed amount of money? [3 (b) What rate of interest with continuous compounding is equivalent to 4.3% semi [2] annual compounded? (c) Suppose that zero interest rates with annual compounding for maturities 1 and 3 years are respectively 2.2% and 3%. Calculate the forward interest rate F13 3] (d) Jeff received $3000 for his graduation and decided to invest this money. The financial planner proposed him an immediate investment of 5% annually com pounded with maturity 30 years (so in 2048) Imagine Jeff wants to postpone his investment. How much must Jeff invest 3 years from now to have the same maturity value at the same maturity date if 5] the second investment earns 3.7% continuously compounded
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