please help me calculate the annual interest rate. Thanks a lot! There are 3 inv

Question

please help me calculate the annual interest rate. Thanks a lot!

There are 3 investment funds launched at time 0. You are given that Fund A earns compounded interest at an annual nominal interest rate 5% convertible continuously Fund B earns simple interest at an annual nominal interest rate 5.5% Fund C earns interest at an annual nominal discount rate 6% convertible semi-annually. (a) Which fund has a better performance during the first 30 months? Explain your answer. (b) A fund manager develops a new fund recently which 30% of the capital will be invested in Fund A, 30% of the capital will be invested in Fund B and 40% of the capital will be invested in Fund C. Calculate the annual effective interest rate of the fund during the period [0.5,2] (time is measured in years).

Explanation / Answer

Fund C will have force of interest of 6.09% and Annual effective interest rate of 5.91% which shall be higher than that of fund A of 5.13 % (Annual effective interest rate) and 5% force of interest.

While Fund B will be at 5.50% since it is simple interst

Part B

30% of 5.13% + 30% of 5.50% + 40% of 6.09% = 1.539+1.650+2.436 = 5.625%

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