CFIN (with Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
5th Edition
ISBN: 9781305661653
Author: Scott Besley, Eugene Brigham
Publisher: Cengage Learning
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Chapter 4, Problem 21PROB
Summary Introduction
CA offers investment at 12% interest rate compounded monthly. UM offers investment at 12.25% compounded semiannually.
Effective annual interest is gained or paid on a loan or an investment due to the result of compounding over a specified time period.
Here,
The effective annual rate is “EAR”.
The annual percentage rate is “APR”.
The no of compounding periods is “m”.
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Of the following investments, which would have the lowest present value? Assume that the effective annual rate for all investments is the same and is greater than zero.
A)Investment A pays $250 at the end of every year for the next 10 years (a total of 10 payments).B) Investment B pays $125 at the end of every 6-month period for the next 10 years (a total of 20 payments).C) Investment C pays $125 at the beginning of every 6-month period for the next 10 years (a total of 20 payments).D) Investment D pays $2,500 at the end of 10 years (just one payment).
Which of the answers is right?
Of the following investments, which would have the lowest present value? Assume that the effective annual rate for all investments is the same and is greater than zero.
Investment A pays $250 at the end of every year for the next 10 years (a total of 10 payments).
Investment B pays $125 at the end of every 6-month period for the next 10 years (a total of 20 payments).
Investment C pays $125 at the beginning of every 6-month period for the next 10 years (a total of 20 payments).
Investment D pays $2,500 at the end of 10 years (just one payment).
Investment E pays $250 at the beginning of every year for the next 10 years (a total of 10 payments).
Chapter 4 Solutions
CFIN (with Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
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