Problem 6 A.) Western Energy makes quarterly deposits into an account reserved for purchasing new equipment two years from now. The interest paid on the deposits is 12% per year, compounded monthly. Identify the interest period, compounding period, and compounding frequency in the interest period. Hint: What is the relations between interest period t, compounding period CP, and effective interest rate per CP? Solution: B.) Western Energy makes quarterly deposits into an account reserved for purchasing new equipment two years from now. The interest paid on the deposits is 12% per year, compounded semi-annually. Calculate the effective annual interest rate, i.e., the APY. Hint: What is the formula to determine the effective annual interest rate? Solution