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FIN 301 - HW#1

# Pv300000 i7 n30 pmt 2417592 4 38 you have an

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Unformatted text preview: 175.92 4-38. You have an investment opportunity that requires an initial investment of \$5000 today and will pay \$6000 in one year. What is the IRR of this opportunity? CF0=-5000, CF1=6000, IRR=20 5-1. Your bank is offering you an account that will pay 20% interest in total for a two-year deposit. Determine the equivalent discount rate for a period length of a. b. Oneyar.=95% c. 5-2. Sixmonths.=46% Onemoth.=76% Which do you prefer: a bank account that pays 5% per year (EAR) for three years or a. Anacouthpys2evrixmfa?PREFVY6MONTHS b. Anacouthpys7evr18mfa?PREF5%YA c. Anacouthpysermf?PREF½%MONTH 5-4. You have found three investment choices for a one-year deposit: 10% APR compounded monthly, 10% APR compounded annually, and 9% APR compounded daily. Compute the EAR for each investment choice. (Assume that there are 365 days in the year.) 1. (1+{.1/12}^12)-1 = 10.47% 2. (1+{.1/1}^1)-1 = 10% 3. (1+{.09/365}^365)-1 = 9.42% 5-7. Suppose the interest rate is 8% APR with monthly compounding. What is the present value of an annuity that pays...
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