# solution

Finding nominal rate of return Suppose the effective annual interest rate on some investment is 9.41%

a. What is the stated rate per month?

b. Suppose you decide to kick your Starbucks habit to save money Currently you spend \$125.00 per month (about \$4 per day) on Starbucks coffee. Without considering the time value of money and assuming Starbucks prices remain steady, how much will you spend at Starbucks over the next 45 years assuming no change in your monthly spending?

c. Now suppose you invest the \$125.00 monthly in an account that earns an effective annual return of 9.41% How much money will you accumulate over 45 years using the funds that you previously spent at Starbucks? Note assume your first monthly deposit occurs one month from now.

The minimum rate of return a T-bill must have earned to meet your requirement of a 3.0 % real rate of return is …%

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