FIN3300 Solution Ch6 (W 0630)

# FIN3300 Solution Ch6 (W 0630) - Solution Chapter 6:...

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Solution Chapter 6: Discounted Cash Flow Valuation Questions: 12, 13, 16, 20, 23, 24, 54, 55 12. For discrete compounding, to find the EAR, we use the equation: EAR = [1 + (APR / m )] m – 1 EAR = [1 + (.08 / 4)] 4 – 1 = .0824 or 8.24% EAR = [1 + (.16 / 12)] 12 – 1 = .1723 or 17.23% EAR = [1 + (.12 / 365)] 365 – 1 = .1275 or 12.75% To find the EAR with continuous compounding, we use the equation: EAR = e q – 1 EAR = e .15 – 1 = .1618 or 16.18% 13. Here we are given the EAR and need to find the APR. Using the equation for discrete compounding: EAR = [1 + (APR / m )] m – 1 We can now solve for the APR. Doing so, we get: APR = m [(1 + EAR) 1/ m – 1] EAR = .0860 = [1 + (APR / 2)] 2 – 1 APR = 2[(1.0860) 1/2 – 1] = .0842 or 8.42% EAR = .1980 = [1 + (APR / 12)] 12 – 1 APR = 12[(1.1980) 1/12 – 1] = .1820 or 18.20% EAR = .0940 = [1 + (APR / 52)] 52 – 1 APR = 52[(1.0940) 1/52 – 1] = .0899 or 8.99% Solving the continuous compounding EAR equation: EAR = e q – 1 We get: APR = ln(1 + EAR) 1

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APR = ln(1 + .1650)
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## This note was uploaded on 05/18/2011 for the course FINANCE Fin3300 taught by Professor Mosley during the Summer '10 term at CSU East Bay.

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FIN3300 Solution Ch6 (W 0630) - Solution Chapter 6:...

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