Problem set 2 solutions

# Problem set 2 solutions - F301 Financial Management 2010...

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F301 Page 2 of 8 Fall 2010 b. What is the effective annual rate? The EAR is 4.0%. When an APR is compounded annually, then APR = EAR. 4. If the interest rate is compounded monthly: a. What will this CD be worth when it matures? R = APR / m = 4.0 / 12 = 0.3333% per month. b. What is the effective annual rate? ± ² ³´µ¶¶·µ¸¹ º » ± ² ³´¼½¶¾¿¸À¹ ºÁ » ±ÂÃÃÄÄÄÄ Å ¹ ºÁ » ±ÂÃÆÃÇ ÈÉÊ » ÆÂÃÇÆËÌ 5. If the interest rate is compounded daily: a. What will this CD be worth when it matures? R = APR / m = 4.0 / 365 = 0.0110% per day. b. What is the effective annual rate? ± ² ³´µ¶¶·µ¸¹ º » ± ² ³´ÍµÎ¸À¹ ÏÐÑ » Ò± ² Ó Â ÃÆ ÄÔÕ Ö× ÏÐÑ » ±ÂÃÆÃØ ÈÉÊ » ÆÂÃØÌ 6. An investor is considering a business opportunity with the following predicted cash flows in each year (i.e., the cash flows are annual for five years). Year
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Problem set 2 solutions - F301 Financial Management 2010...

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