You recently got a job working for a credit card company. You are working in the department that oversees some of the "rewards programs" associated with the credit cards your company offers. One of the simpler programs is a "cash back" rewards program. In this program, your company offers 4% cash back on purchases in certain categories (e.g. restaurants, entertainment, and groceries). The way this works is that if one of the holders of this credit card spends $100 on approved purchases in a given month, then at the end of the month, your company would pay that cardholder $4.00 ( 4% of the $100 spent during that month). To compensate for these rewards, you also charge cardholders an annual fee. A cardholder would pay this fee once at the beginning of the year, and then receive cash back at the end of each month. Through this program, you have essentially sold an annuity, collecting an annual fee at the beginning of the year and then making monthly payments. Let's think about your exposure to interest rate risk. As the payer of this annuity (and recipient of a single up-front payment) do you benefit or suffer when interest rates across the economy go up? Do you benefit or suffer when rates go down? To answer this question think about whether the value of what you have to pay out to cardholders increases or decreases with changes in ipterest rates