1. Find the annual payments for an ordinary annuity and an annuity due for 12 years with a PV of $1,000 and an interest rate of 10%. Round your answers to the nearest cent. Annual payment for ordinary annuity: $ Annual payment for annuity due: $
1. Find the annual payments for an ordinary annuity and an annuity due for 12 years with a PV of $1,000 and an interest rate of 10%. Round your answers to the nearest cent. Annual payment for ordinary annuity: $ Annual payment for annuity due: $
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:i. Find the annual payments for an ordinary annuity and an annuity due for 12 years with a PV of $1,000 and an interest rate of 10%. Round your answers to the nearest cent.
Annual payment for ordinary annuity: $
Annual payment for annuity due: $
j. Find the PV and the FV of an investment that makes the following end-of-year payments. The interest rate is 10%.
Year
1
Payment
$100
2
$300
$500
3
Round your answers to the nearest cent.
PV of investment: $
FV of investment: $
k. Five banks offer nominal rates of 9% on deposits, but A pays interest annually, B pays semiannually, C pays quarterly, D pays monthly, and E pays daily. Assume 365 days in a year.
1. What effective annual rate does each bank pay? If you deposit $3,000 in each bank today, how much will you have in each bank at the end of 1 year? 2 years? Round your answers to two decimal places.
EAR
FV after 1 year
FV after 2 years
Nominal rate
$
$
Payment
A
A
%
B
$
$
%
B
B
C
%
$
2. If the TVM is the only consideration, what nominal rate will cause all of the banks to provide the same effective annual rate as Bank A? Round your answers to two decimal places.
%
$
$
с
с
4. Even if the five banks provided the same effective annual rate, would
It is more likely that an investor would prefer the bank that compounded
$
D
%
D
$
$
%
3. Suppose you don't have the $3,000 but need it at the end of 1 year. You plan to make a series of deposits annually for A, semiannually for B, quarterly for C, monthly for D, and daily for Ewith payments beginning today.
How large must the payments be to each bank? Round your answers to the nearest cent.
D
$
frequently.
E
%
E
$
$
%
rational investor be indifferent between the banks?
E
%
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