Suppose we invest £100,000 at a semi-annually compounded interest rate of 6% for 1 year. What are the gross and net returns? Do the same if this was a monthly compounded rate and a continuously compounded rate. Compare the chree net returns to the interest rate. Can you explain the ordering of these 4 quantities?

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter5: The Time Value Of Money
Section: Chapter Questions
Problem 31P
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Suppose we invest £100,000 at a semi-annually
compounded interest rate of 6% for 1 year. What
are the gross and net returns? Do the same if this
was a monthly compounded rate and a
continuously compounded rate. Compare the
three net returns to the interest rate. Can you
explain the ordering of these 4 quantities?
Transcribed Image Text:Suppose we invest £100,000 at a semi-annually compounded interest rate of 6% for 1 year. What are the gross and net returns? Do the same if this was a monthly compounded rate and a continuously compounded rate. Compare the three net returns to the interest rate. Can you explain the ordering of these 4 quantities?
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