Matching Interest Rates to Cash Flows

73 d annuity of 50 every six months for four years

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Unformatted text preview: . The interest rate is 10% per year. A = 50 rYr = 10% => rsemi = 4.88% n = 8 PV= $324.73 d) Annuity of $50 every six months for four years starting at the end of the first period. Interest rate is 10% compounded semi ­annually. A = 50 rsemi = 5% n = 8 PV= $323.16 Nominal Interest Rates and Annuities - Annuities have cash flows that occur at certain frequencies (bi ­weekly, monthly, etc). - Interest rates are quoted with a compounding frequency. - When the frequency at which annuity cash flows occur differs from...
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