question archive Bank A offers both deposits and loans at interest rate r = 2
Bank A offers both deposits and loans at interest rate r = 2
Subject:FinancePrice:2.86 Bought3
Bank A offers both deposits and loans at interest rate r = 2.5% compounded semi-annually. (a) If you deposit £200 in a Mile End Bank account, how much money will be in the account 6 years later? State your answer to the nearest pence. (b) What is the effective rate offered by Mile End Bank? State your answer as a percentage to three significant figures. Bank Bloffers an account with interest that is continuously compounded at rate 7% for the first year and 5% for the second year, after which the interest rate is continuously compounded at rate 1%. (c) Sketch the graph of the interest rate r(t) as a function of years t. (d) Find the yield curve r(t) for all t> 0. [6]
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Question 1
Bank A
Rate provided: 2.5% comounded semi annually
Principal amount = 200
Amount after 6 years = 200 ( 1 + 0.025/2)12
232.15
Let the effective rate per annum be x
Amount after 6 years= 200* (1+x)6
232.15= 200 *(1+x)6
x = 0.025156
x = 2.5156%
Effective rate = 2.5156%
