Question

1. An asset was issued 11 months ago. The asset promised to make semi-annual payments (one payment every six months) of $120 each, from the date of issuance, for two years. All payments are equally risky and thus they have the same discount rate. You've decided that the discount rate is 14%. According to these numbers, how much is the asset worth to you today?  Round your answer to the NEAREST DOLLAR.

The correct answer is: 334, please explain step by step how to get to solution

2. You bought an investment for $1000 and 5 years later sold that investment for $2400. Taking into account compounding, what was your average annual return during the investment? Round your answer to the nearest tenth of a percent and use decimals - in other words, if the answer is 7.3%, type .073.

The correct answer is 0.191, please explain step by step how to get to solution

Answer 1

PART 1-

Since the asset was issued 11 months ago, we will receive one installment 1 month from now and two installments after 6 months gap each.

The present value is calculated as below-

PART 2 -

In this case, the following equation can be formed-

(1+R) = 1.191

R = 0.191

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