The interest rate per payment period is the semi-annual rate.

The formula for a per period interest rate given below enables you to determine the Effective

Rate for any period given a quoted rate:

= (1 + ) 1

f: frequency of payments per year m: number of compounding intervals per year.

QR: quoted rate

Find the semi-annual interest rate (round off to 4 decimal points); draw a timeline to be sure where the CFs occur.

Answer parts a and b.

You should fine the following answers:

(a). $17,553.40

(b). $12,774.05

Answer the following question:

You came up with a new app patented for 17 years. Profits will be $2 million at the end of the first year then grow at 5% p.a. for 17 years. What is the present value of your app if the interest rate is 10%?