Question

1. You are offered an investment that will pay $100 annually for 7 years (the first payment will be made at the end of year 1) plus $2,900 at the end of year 7. If the appropriate discount rate is 5%, assume annual compounding, what is the investment worth to you today?

2. You are offered an investment that will pay $100 annually for 7 years (the first payment will be made at the end of year 1) plus $2,900 at the end of year 7. If the appropriate discount rate is 5%, assume semi-annual compounding, what is the investment worth to you today?

3. You are offered an investment that will pay $100 semi-annual for 7 years (the first payment will be made at the end of month 6) plus $2,900 at the end of year 7. If the appropriate discount rate is 5%, assume semi-annual compounding, what is the investment worth to you today?

Answer #1

1. You are offered an investment that will pay $100 annually for 7 years (the first payment will be made at the end of year 1) plus $2,900 at the end of year 7. If the appropriate discount rate is 5%, assume annual compounding, what is the investment worth to you today?

The investment is worth $2,639.6131971774 to us today

2. Effective annual rate, r = (1 + 0.05/2)^2 - 1

r = 0.050625

3. n = 7 * 2 = 14

r = 0.05/2 = 0.025

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· are you trying to find a PV or FV?
· show your calculations using the formula
· show your calculations using the keystrokes for your
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$10,000 in three years. It is somewhat risky, so you would only
take on this investment if you earned a 20% annual return with
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investment today?
are you trying to find a PV or FV?
show your calculations using the formula
show your calculations using the keystrokes for your financial
calculator (state which financial calculator you are using)...

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