b=1

[3] Question 1 [15 marks]. Mile End Bank offers both deposits and loans at interest rate r = 2.5% compounded semi-annually. (a) If you deposit (200+ b) in a Mile End Bank account, where b is the last digit of your student number, and make no withdrawals, how much money will be in the account 6 years later? State your answer to the nearest pence. (b) What is the effective rate offered by Mile End Bank? State your answer as percentage to three significant figures. East London Bank offers an account with interest that is continuously compounded at rate 7% for the first year and 5% for the second year, after which the interest rate is continuously compounded at rate 1%. (c) Sketch the graph of the interest rate r(t) as a function of years t. (d) Find the yield curve r(t) for all t > 0. [3] [3] [6]