CFIN
6th Edition
ISBN: 9780357144039
Author: BESLEY
Publisher: CENGAGE L
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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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ou can assume that all payments are made at the beginning of the period and use "1" for the "type" argument in the formula.
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B
B. Suppose you invest
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Question 1
Question 2
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17
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You are comparing two investments. The first pays 3 percent interest per month, compounded monthly, and the second pays 6 percent interest per six months, compounded every six months.
a. What is the effective semiannual interest rate for each investment?
b. What is the effective annual interest rate for each investment?
c. Based on the interest rates, which investment is preferred? Does the decision depend on whether the comparison is based on an effective six-month rate or an effective one-year rate?
a. The effective semiannual interest rate for the first investment is
percent.
(Type an integer or decimal rounded to two decimal places as needed.)
Assume that at the beginning of the year, you purchase an investment for $7,200 that pays $100 annual income. Also assume the
investment's value has decreased to $6,800 by the end of the year.
(a) What is the rate of return for this investment? (Input the amount as a positive value. Enter your answer as a percent rounded to 2
decimal places.)
Rate of return
%
(b) Is the rate of return a positive or negative number?
Positive
O Negative
Chapter 4 Solutions
CFIN
Ch. 4 - Prob. 1PROBCh. 4 - Prob. 2PROBCh. 4 - Prob. 3PROBCh. 4 - Prob. 4PROBCh. 4 - Prob. 5PROBCh. 4 - Prob. 6PROBCh. 4 - Prob. 7PROBCh. 4 - Prob. 8PROBCh. 4 - Prob. 9PROBCh. 4 - Prob. 10PROB
Ch. 4 - Prob. 11PROBCh. 4 - Prob. 12PROBCh. 4 - Prob. 13PROBCh. 4 - Prob. 14PROBCh. 4 - Prob. 15PROBCh. 4 - Prob. 16PROBCh. 4 - Prob. 17PROBCh. 4 - Prob. 18PROBCh. 4 - Prob. 19PROBCh. 4 - Prob. 20PROBCh. 4 - Prob. 21PROBCh. 4 - Prob. 22PROBCh. 4 - Prob. 23PROBCh. 4 - Prob. 24PROBCh. 4 - Prob. 25PROB
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