# Suppose you are offered a savings account with an annual percentage rate of 4%

Suppose you are offered a savings account with an annual percentage rate of 4%. The effective annual rate will be?

Suppose you invest in property with a perpetual cash flow. At the end of the first year you will receive $100 but the return will fall by 5% a year so that the second year's payment will be $95. If this 5% decline continues in perpetuity, what is the present value of the perpetual cash flow stream at a discount rate of 5% ?

Correct Answer: $1,000

If the exchange rate between the U.S. dollar (USD) and the Swiss franc (CHF) is CHF1.5 per USD, the USD interest rate is 6% per year, and the CHF interest rate is 5% per year, what is the break-even value of the future CHF/USD exchange rate one year from now?

Correct Answer: 1.48585 CHF/USD

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QUESTION 1

Suppose you are offered a savings account with an annual percentage rate of 4%. The effective annual rate will be?

Since the number of compounding is not specified, I will compute for the effective annual rate for semi-annual, quarterly, monthly and daily compounding using the following formula

Effective annual rate =[(1 + interest rate/number of compounding)^ number of compounding] - 1

Semi-annual = [(1 + 4%/2)^2] - 1 = ...

#### Solution Summary

The expert examines a savings account with an annual percentage rate of 4%.