Your broker would like to sell you a security (S) that will pay you $485 each...
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Your broker would like to sell you a security (S₁) that will pay you $485 each year for the next 7 years (payments at Years 1-7) and will cost you $2,213.42 to purchase. A competing broker would like you to purchase a different security (S₂) that will pay you $195 a quarter for the next 8 years (Quarters 1- 32) and has promised you an effective annual rate of return that will be 2.0 percent higher (200 basis points) than the effective annual rate of return on the first security. Given this information, determine how much you should have to pay for this second security in order to earn this higher effective rate of return. Your broker would like to sell you a security (S₁) that will pay you $485 each year for the next 7 years (payments at Years 1-7) and will cost you $2,213.42 to purchase. A competing broker would like you to purchase a different security (S₂) that will pay you $195 a quarter for the next 8 years (Quarters 1- 32) and has promised you an effective annual rate of return that will be 2.0 percent higher (200 basis points) than the effective annual rate of return on the first security. Given this information, determine how much you should have to pay for this second security in order to earn this higher effective rate of return.
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Answer rating: 100% (QA)
Answer S1 Present value 221342 Annual payments 485 Period 7 years E... View the full answer
Related Book For
Financial Accounting
ISBN: 978-0078025549
3rd edition
Authors: J. David Spiceland, Wayne Thomas, Don Herrmann
Posted Date:
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