1. What is the value at the end of Year 3 of the following cash flow stream if interest is 4% compounded semiannually? (Hint: you can use the EAR and treat the cash flows as an ordinary annuity or use the periodic rate and compound the cash flows individually.) 0 ㅏ 0 2 4 + + + + $100 $100 6 $100 2. What is the PV? 3. What would be wrong with your answer to parts I(1) and (2) if you used the nominal rate, 4%, rather than the EAR or the periodic rate, INOM/2 = 4% / 2 = 2%, to solve the problems?
1. What is the value at the end of Year 3 of the following cash flow stream if interest is 4% compounded semiannually? (Hint: you can use the EAR and treat the cash flows as an ordinary annuity or use the periodic rate and compound the cash flows individually.) 0 ㅏ 0 2 4 + + + + $100 $100 6 $100 2. What is the PV? 3. What would be wrong with your answer to parts I(1) and (2) if you used the nominal rate, 4%, rather than the EAR or the periodic rate, INOM/2 = 4% / 2 = 2%, to solve the problems?
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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Please answer this question: What is the value at the end of Year 3 of the following cash flow stream if interest is 4% compounded semiannually? (Hint: you can use the EAR and treat the cash flows as an ordinary annuity or use the periodic rate and compound the cash flows individually.) What is the PV? What would be wrong with your answer to parts I(1) and I(2) if you used the nominal rate, 4%, rather than the EAR or the periodic rate, I sow /2=4%/2=2%, to solve the problems?
Transcribed Image Text:I. 1. What is the value at the end of Year 3 of the following cash flow stream if interest is 4%
compounded semiannually? (Hint: you can use the EAR and treat the cash flows as an ordinary
annuity or use the periodic rate and compound the cash flows individually.)
0
0
2. What is the PV?
2
$100
4
$100
6
$100
3. What would be wrong with your answer to parts I(1) and (2) if you used the nominal rate, 4%,
rather than the EAR or the periodic rate, INOM/2=4% / 2 = 2%, to solve the problems?
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