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Effective Rates PLZ Consider the following compound interest scheme, which we'll refer to as Scheme RST throughout this test. Scheme RST An interest rate of
Effective Rates PLZ
Consider the following compound interest scheme, which we'll refer to as Scheme RST throughout this test. Scheme RST An interest rate of r> 0 is applied at the end of the first week, An interest rate of s > 0 is applied at the end of the second week, An interest rate of t > 0 is applied at the end of the third week. Thereafter, the cycle repeats, so that the rates r, s, and t are applied at the end of the subsequent weeks, in this order. 2. Effective rates (i) Consider another investment scheme that compounds once, at the end of the year, with annual interest rate r. What value of a must be selected in order for a principal P, invested on January 1st, to have the same value at the end of the year as an investment of P in Scheme RST? (ii) Next consider an investment scheme that compounds continuously with interest rate re. What value of re must be selected in order for a principal P, invested on January 1st, to have the same value at the end of the year as an investment of P in the Scheme RST? (iii) How does a compare to r.? Le does it necessarily hold that ra > Te, or r Step by Step Solution
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