For bonds, assume coupons paid semi-annually, coupon rates and yields quoted with semi- annual compounding, and redeemable at par unless otherwise noted (Ignore it if it's not relevant to the question).

1. What is the effective annual rate earned by an investor receiving 12% compounded monthly?

2. A manufacturer sells a product to a retailer who has the option of either paying 15% below retail price immediately or paying the retail price in 18 months. Find the annual effective rate of interest at which the retailer would be indifferent between the two options.