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The present value of 8 equal semi-annual payments of $50 made at the beginning of the...

  1. The present value of 8 equal semi-annual payments of $50 made at the beginning of the year is $ 350. determine the following(Show me the time line and the financial calculator’s inputs).:
  1. periodic rate.
  2. Annual percentage rate.
  3.       effective annual rate
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Answer #1

Time line

Payments made are cash outflows. They are represented with a negative sign.

a. PMT = -50

n = 8

PV = 350

FV = 0

CPT I/Y

I/Y = 3.066642%

Periodic rate = 3.066642%

b. Annual percentage rate, APR = Periodic rate * 2

APR = 3.066642% * 2

APR = 0.06133284

APR = 6.133284%

c. Effective annual rate, EAR = (1 + Periodic rate)^2 - 1

EAR = (1 + 3.066642%)^2 - 1

EAR = 1.0622732693 - 1

EAR = 0.0622732693

EAR = 6.22732693%

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