Question: Answer the following:

a) Rather than give her grand-nephew some money each year while he is studying, Stephen's great-aunt has decided to save the money and pay off Stephen's student loans when he finishes his degree. The total amount owing at that time will be $16,000. How much will she have to save each year until that time if her investments earn a return of 7 percent per year?

b) Bank A pays 7.25 percent interest compounded semi-annually, Bank B pays 7.20 percent compounded quarterly, and Bank C pays 7.15 percent compounded monthly. Which bank pays the highest effective annual rate?