Q7) (15 marks)

Lin has $200000.00 invested in the stock market and $100000.00 in his savings account. At the end of each year, he looks at the total of his investments and transfers money from one to the other so that his stock market investment is again twice as much as his savings account. His savings account always pays 2% compounded quarterly.

a) In the first year, his stock market investment earns 8.00% (effective annual rate). How much money does he transfer from his stocks to his savings account (or vice versa)?

b) In the second year, his stock market investment loses 8.00% (effective annual rate). How much money does he transfer from his stocks to his savings account (or vice versa)?

c) In the third year, his stock market investment again makes 3.00% (effective annual rate). How much money does he have in total?

d) If he had just taken the total amount of money he started with ($300000.00) and invested it for 3 years ending up with the same amount of money as your answer for part c), what would his effective annual interest rate have been?