Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

PV and Effective Annual Rate Assume that you inherited some money. A friend of yours is working as an unpaid intern at a local brokerage

image text in transcribed
PV and Effective Annual Rate Assume that you inherited some money. A friend of yours is working as an unpaid intern at a local brokerage firm, and her boss is selling securities that call for 4 payments of $70 (1 payment at the end of each of the next 4 years) plus an extra payment of $1,000 at the end of Year 4. Your friend says she can get you some of these securities at a cost of $950 each. Your money is now invested in a bank that pays a 6% nominal (quoted) interest rate but with quarterly compounding. You regard the securities as being just as safe, and as liquid, as your bank deposit, so your required effective annual rate of return on the securities is the same as that on your bank deposit. You must calculate the value of the securities to decide whether they are a good investment. What is their present value to you? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as positive value PV and Effective Annual Rate Assume that you inherited some money. A friend of yours is working as an unpaid intern at a local brokerage firm, and her boss is selling securities that call for 4 payments of $70 (1 payment at the end of each of the next 4 years) plus an extra payment of $1,000 at the end of Year 4. Your friend says she can get you some of these securities at a cost of $950 each. Your money is now invested in a bank that pays a 6% nominal (quoted) interest rate but with quarterly compounding. You regard the securities as being just as safe, and as liquid, as your bank deposit, so your required effective annual rate of return on the securities is the same as that on your bank deposit. You must calculate the value of the securities to decide whether they are a good investment. What is their present value to you? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as positive value

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Handbook Of Fixed Income Securities

Authors: Frank Fabozzi, Steven Mann, Francesco Fabozzi

9th Edition

ISBN: 1260473899, 978-1260473896

More Books

Students also viewed these Finance questions