Assume that your new clothing designer line of business has just bagged an order that will pay you $ 1,000,000 in 1 years.

However, you do NOT need the cash for the next year (i.e. from 1 to 2 years).

Instead, you require the cash payment be made to you in year 2. Use the necessary information from the previous question(below this question) to:

What is the continuously compounded (annual) interest rate you can expect to earn with certainty over this period (1 to 2 years)?

Clearly explain what steps you will take to ensure that you can Lock in an interest rate for this period.

What is the amount you will receive at the end of year 2 as opposed to $1,000,000 at the end of year 1?

PREVIOUS QUESTION

Assume you are indifferent between depositing your money Between Bank A and Bank B.

Bank A pays an interest of 10%, compounded quarterly.

What should be the interest rate paid by Bank B, if it compounds interest continuously.