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Question 1: This question has multiple parts. Please read them carefully. You are given a nominal interest rate of 16%. Part A: Calculate the
Question 1: This question has multiple parts. Please read them carefully. You are given a nominal interest rate of 16%. Part A: Calculate the effective interest rate of 16% per year compounded monthly. [2 pts] Part B: Calculate the effective interest rate of 16% per year compounded weekly. [2 pts] Part C: Calculate the effective interest rate of 16% per year compounded continuously. [2 pts] Part D: Use the effective interest rate calculated in Part C (16% per year compounded continuously) in this Part D. You purchased a CAT 657 Scraper and are responsible for finding the equivalent present cost of the maintenance over the next 6 years. The maintenance costs $15,000 in year 1 and increases by 6% each subsequent year for 6 years. Draw the Cash Flow Diagram (CFD) [2 pts] What is the equivalent present cost of the maintenance over 6 years? [6 pts] Part D: Use the effective interest rate calculated in Part C (16% per year compounded continuously) in this Part D. You purchased a CAT 657 Scraper and are responsible for finding the equivalent present cost of the maintenance over the next 6 years. The maintenance costs $15,000 in year 1 and increases by 6% each subsequent year for 6 years. Draw the Cash Flow Diagram (CFD) [2 pts] What is the equivalent present cost of the maintenance over 6 years? [6 pts] Part E: Refer back to Part D above. Instead of the interest rate being 16% per year compounded continuously, what would the equivalent present cost of the maintenance over 6 years be if the interest rate is an effective 6% per year? [6 pts]
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