Question

1.) Global Investment Corporation is exploring multiple investment opportunities to invest about $10 M. Four investment opportunities are being carefully evaluated. If the company is interested in maximizing the return on investment, which one is offers the best opportunity. i. 12% compounded quarterly. ii. 11.85% compounded daily. iii. 11.95% compounded monthly. iv. 11.82% compounded continuously.

Answer 1

Find the effective annual interest rates to find which one is maximum

(1 + 12%/4)^4 – 1 = 12.55%

(1 + 11.85%/360)^360 – 1 = 12.58%

(1 + 11.95%/12)^12 – 1 = 12.63%

Exp(11.82%) – 1 = 12.55%

We see that the maximum returns are available when the interest rate is 11.95% compounded monthly.

Hence we select III.