Question
What rate of interest with continuous compounding is equivalent to an 7% interest rate with semi-annual compounding? [4] (b) Consider a project costing e30, 000
What rate of interest with continuous compounding is equivalent to an 7% interest rate with semi-annual compounding? [4]
(b) Consider a project costing e30, 000 for each of the first three years (where the first payment is made today at time T = 0). Then, starting at the beginning of the fourth year (i.e. at time T = 3), it begins generating a profit of e18, 000 per year for all future years. Assume an annually compounded interest rate of 4%, i) Write down the present value of this project at the beginning of year 3+t, where t is any non-negative integer. (ii) Find the value of T at which you break even
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