Question

i need answer for no. b please

Kristi is considering an investment that will pay $7,500 a year for eight years, starting one year from today. How much should she pay for this investment if she wishes to earn a 6% rate of return? Provide complete calculations in your answer

b. Kristi was offered three (3) different assets, as listed below:

 Asset 1 pays annual interest rate of 9% compounding annually.

 Asset 2 pays annual interest rate of 8.9% compounding semi-annually.

 Asset 3 pays interest rate 8.95 compounding monthly.

Based on effective annual interest rate calculations, which of the above assets is the best choice for Kristi. Show your calculations for all three (3) assets.

Answer 1

Asset 1 pays annual interest rate of 9% compounding annually. Effetive Annual Interest = 9%

Asset 2 pays annual interest rate of 8.9% compounding semi-annually. Effetive Annual Interest = 9.09802%

Effective Annual Interest compounding semi annually = 100 [ 1 + ( r / 200 )]2

                                                              

Asset 3 pays interest rate 8.95 compounding monthly. Effetive Annual Interest = 9.32642%