Answered: If a security currently worth $5,600…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 18P

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4. Finding the interest rate and the number of years

The future value and present value equations also help in finding the interest rate and the number of years that correspond to present and future value calculations.

If a security currently worth $5,600 will be worth $12,379.82 seven years in the future, what is the implied interest rate the investor will earn on the security—assuming that no additional deposits or withdrawals are made?

12.00%

4.52%

9.60%

0.32%

If an investment of $35,000 is earning an interest rate of 4.00%, compounded annually, then it will take for this investment to reach a value of $44,286.17—assuming that no additional deposits or withdrawals are made during this time.

Which of the following statements is true—assuming that no additional deposits or withdrawals are made?

If you invest $1 today at 15% annual compound interest for 82.3753 years, you’ll end up with $100,000.

If you invest $5 today at 15% annual compound interest for 82.3753 years, you’ll end up with $100,000.

Expert Solution

Step 1 Explanation

The interest rate is the rate representative of the time value of money and it the return in % earned over the investment tenure. This can be found using the RATE function in excel.

The number of years is the number of compounding periods that results in the future value. This can be calculated using NPER function in excel.

The future value is the future value of the money invested at a certain rate for a certain number of years. This can be calculated using FV function in excel.

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