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1. You are offered an investment that will pay $100 annually for 7 years (the first...

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?

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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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