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1. An investment makes the payments as shown in the cash flow diagram below. All payments occur at the end of each indicated year.

1. An investment makes the payments as shown in the cash flow diagram below. All payments occur at the end of each indicated year. $300,000 $500,000 $700,000 6 3 (a) If the interest rate is 4% nominal annual compounded monthly, calculate the effective 3 year interest rate. (2 marks) (b) Calculate the equivalent annuity value of this investment and draw its cash flow diagram. (4 marks) (c) What is the value today of this investment? (4 marks) 9 $900,000 12

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