of interest can be calculated using the formula reff = 1 + r m m − 1
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Investment Analysis
The effective rate of interest can be calculated using the formula
reff =
1 +
| r |
| m |
| m | |
− 1
where reff is the effective rate of interest, r is the nominal interest rate per year, and m is the number of conversion periods per year. Find the nominal interest rate that, when compounded monthly, yields an effective interest rate of 3%/year. (Round your answer to two decimal places.)
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- Assume that an investment of 100,000 produces a net cash flow of 60,000 per year for two years. The discount factor for year 1 is 0.89 and for year 2 is 0.80. The NPV is a. 0 b. 6,800 c. 1,400 d. (4,000)Suppose that an investment promises to pay a real 9% annual rate of interest and inflation rate is 3%. What is the effective annual interest rate on this investment assuming that interest is compounded quarterly? PLEASE SHOW HOW YOU COMPUTE EACH OF THE ITEMS.Suppose that an investment promises to pay a real 9% annual rate of interest and inflation rate is 3%. What is the effective annual interest rate on this investment assuming that interest is compounded quarterly?
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