Question 1 (9 marks) Consider a 2-year investment project that provides a compound annual rate of return of 10%.
a) Calculate the corresponding average simple annual rate of return. (2 marks)
b) Calculate the corresponding 2-year rate of return based on the compound rate and the simple rate of return (3 marks)
c) Explain in words (no calculation should be provided) why the two rates in part (b) are the same [Hint: Take a close look at the question and identify the key words(s) that points to that result.) (2 marks)
d) In general, under what condition will the future values (with n > 1) calculated using both rates (compound and simple) be the same? Explain. (2 marks) Get Finance homework help today
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