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In the following, different parts of the question are independent and not related to each...

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Finance

In the following, different parts of the question are independent and not related to each other.

(a) suppose the effective 1-month risk-free interest is 1%. consider a risk-free security that pays $10 in one month, $10 in three month, and $20 in seven months.

there are no other payments.

note that there is no risk associated with the payments. find the fair value today of security.

(b) consider an effective semiannual interest rate of 6%. Find the equivalent continuously compounded rate, if you invest $5 million at this equvialent continously compounded rate for 12.125 years, how much funds will you have in 12.125 years?

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