Problem 2 (Required, 25 marks) There are 3 investment funds available in the market at time 0. You are given that Fund A earns interest at a force of interest &t = 4.8% Fund B earns compounded interest at an annual nominal interest rate 5% convertible monthly. Fund Cearns compounded interest convertible semi-annually. The annual nominal interest rate during first 2 years is 5.2% and is 4.6% therefore. Questions (a) Suppose that an investor wishes to invest its capital into one of these 3 funds at time 0.5 (not time 0) for 18 months, which fund should he/she consider? Explain your answer. (Hint: Which type of interest rate should you consider when comparing the performances between different funds?) (b) A fund manager develops a new fund recently which 30% of the capital will be invested in fund A, 40% of capital will be invested in fund B and the remaining will be invested in fund C. Calculate the effective interest rate of the fund during the period (1, 3). Problem 2 (Required, 25 marks) There are 3 investment funds available in the market at time 0. You are given that Fund A earns interest at a force of interest &t = 4.8% Fund B earns compounded interest at an annual nominal interest rate 5% convertible monthly. Fund Cearns compounded interest convertible semi-annually. The annual nominal interest rate during first 2 years is 5.2% and is 4.6% therefore. Questions (a) Suppose that an investor wishes to invest its capital into one of these 3 funds at time 0.5 (not time 0) for 18 months, which fund should he/she consider? Explain your answer. (Hint: Which type of interest rate should you consider when comparing the performances between different funds?) (b) A fund manager develops a new fund recently which 30% of the capital will be invested in fund A, 40% of capital will be invested in fund B and the remaining will be invested in fund C. Calculate the effective interest rate of the fund during the period (1, 3)