You wish to put your savings of £5000 into a bank account. There are two different offers from bank A and bank B. A) Bank A has the following offer for savings: They first offer continuously compounded interest at the nominal rate of 8% for an introductory period of 2 years, after which interest is continuously compounded at the nominal rate 2%. Determine the yield curve r¯(t). Evaluate the yield curve at t=7 and determine the amount to which your savings will grow after 7 years. B) Bank B offers a constant nominal interest rate of 4% which is compounded continuously. If you choose this bank, to which amount will your money grow after 7 years? C) Determine the particular time t∗ (in units of years) where the offers of bank A and bank B generate the same growth of your savings if they are put into the bank account until time t∗.
You wish to put your savings of £5000 into a bank account. There are two different offers from bank A and bank B.
A) Bank A has the following offer for savings: They first offer continuously
Evaluate the yield curve at t=7 and determine the amount to which your savings will grow after 7 years.
B) Bank B offers a constant nominal interest rate of 4% which is compounded continuously. If you choose this bank, to which amount will your money grow after 7 years?
C) Determine the particular time t∗ (in units of years) where the offers of bank A and bank B generate the same growth of your savings if they are put into the bank account until time t∗.
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