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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Present Values

Krista Kellman has an opportunity to purchase a government security that will pay $200,000 in

5 years.

Required:

Note: Round answers to two decimal places.

1. Calculate what Krista would pay for the security if the appropriate interest (discount) rate is 6% compounded annually.

2. Calculate what Krista would pay for the security if the appropriate interest (discount) rate is 10% compounded annually.

3. Calculate what Krista would pay for the security if the appropriate interest (discount) rate is 6% compounded semiannually.

To determine

(a)

Introduction:

Compound interest considers the time value of money. Present value of Cashflow means the amount that should be invested to earn a specific amount on a specific date.

To calculate:

The amount to be invested when 6% interest rate is compounded annually.

Explanation

Cash Flow (f) = $200,000

Compounded Annually,

Interest Rate = 6%

No. of periods = 5

PV = Present Value

PV = ...

To determine

(b)

Introduction:

Compound interest considers the time value of money. Present value of Cashflow means the amount that should be invested to earn a specific amount on a specific date.

To calculate:

The amount to be invested when 10% interest rate is compounded annually.

To determine

(c)

Introduction:

Compound interest considers the time value of money. Present value of Cashflow means the amount that should be invested to earn a specific amount on a specific date.

To calculate:

The amount to be invested when 6% interest rate is compounded semiannually.

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