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3. a. What is the value at the end of Year 3 of the following cash flow stream if interest is 10%, compounded semiannually? (Hint: You can use the EAR and treat the cash flows as an ordinary annuity) Show your solution. 2 6 Periods + 100 100 100 b. What is the PV? c. How much is the overstatement of your answer on letter b if you used the nominal rate, 10% to discount the payment stream rather than the EAR?

3. a. What is the value at the end of Year 3 of the following cash flow stream if interest is 10%, compounded semiannually? (Hint: You can use the EAR and treat the cash flows as an ordinary annuity) Show your solution. 2 6 Periods + 100 100 100 b. What is the PV? c. How much is the overstatement of your answer on letter b if you used the nominal rate, 10% to discount the payment stream rather than the EAR?

Essentials Of Investments
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
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PLEASE ANSWER LETTER B AND C ONLY

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3. a. What is the value at the end of Year 3 of the following cash flow stream if interest is 10%, compounded semiannually? (Hint: You can use the EAR and treat the cash flows as an ordinary annuity) Show your solution. 2 4 6 Periods + 100 100 100 b. What is the PV? c. How much is the overstatement of your answer on letter b if you used the nominal rate, 10% to discount the payment stream rather than the EAR?
Transcribed Image Text:3. a. What is the value at the end of Year 3 of the following cash flow stream if interest is 10%, compounded semiannually? (Hint: You can use the EAR and treat the cash flows as an ordinary annuity) Show your solution. 2 4 6 Periods + 100 100 100 b. What is the PV? c. How much is the overstatement of your answer on letter b if you used the nominal rate, 10% to discount the payment stream rather than the EAR?
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