A loan company lends money at 1.25% per month, compounded monthly.

1. What are the nominal and effective annual interest rates?

2. How many years will it take an investment to double itself if interest is compounded monthly?

3. The company is considering the option of investing $20,000 in high-risk stocks over the next 5 years instead of loaning out that money. The projections for the next several years are as follows: a 3% return for a best case with a probability of 70%; and a 4% return (i.e., loss) for a worst case with a probability of 30%. Is the stock investment more attractive to the company that the loan investment?