CFIN (with MindTap Finance, 1 term (6 months) Printed Access Card) (MindTap Course List)
6th Edition
ISBN: 9781337407342
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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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.)
An investment pays $200 at the end of Year I. $250 at the beginning* of Year 2. $387 at the end of Year 4. and $500 at the beginning of Year 6. If other investments of equal Mk earn 7.5% annually. what will be this investments present value and future value?
Chapter 4 Solutions
CFIN (with MindTap Finance, 1 term (6 months) Printed Access Card) (MindTap Course List)
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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