Question
On January 1, 2015 Mr. Hamburger acquired a $3, 000 note due on January 1, 2025. Upon maturity, the note promises to pay to its
On January 1, 2015 Mr. Hamburger acquired a $3, 000 note due on January 1, 2025. Upon maturity, the note promises to pay to its holder the face value plus interest equivalent to 6%/year compounded annually. (a) Mr. Hamburger needs money for his 2018 summer vacation. On July 1, 2018 he decides to sell the note to an insurance company that seeks to earn a rate of return of 5%/year compounded semi-annually. How much money does Mr. Hamburger receive from the insurance company? (b) What return rate does Mr. Hamburger realize on his investment? (c) What return rate does the insurance company realize on its investment if it holds the note until maturity?
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