Assume that you inherited some money. A friend of yours is working as an unpaid intern at a local brokerage firm, and her boss is selling securities that call for 4 payments of $60 (1 payment at the end of each of the next 4 years) plus an extra payment of $1,000 at the end of Year 4. Your friend says she can get you some of these securities at a cost of $975 each. Your money is now invested in a bank that pays a 12% nominal (quoted) interest rate but with quarterly compounding. You regard the securities as being just as safe, and as liquid, as your bank deposit, so your required effective annual rate of return on the securities is the same as that on your bank deposit. You must calculate the value of the securities to decide whether they are a good investment. What is their present value to you? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $
Assume that you inherited some money. A friend of yours is working as an unpaid intern at a local brokerage firm, and her boss is selling securities that call for 4 payments of $60 (1 payment at the end of each of the next 4 years) plus an extra payment of $1,000 at the end of Year 4. Your friend says she can get you some of these securities at a cost of $975 each. Your money is now invested in a bank that pays a 12% nominal (quoted) interest rate but with quarterly compounding. You regard the securities as being just as safe, and as liquid, as your bank deposit, so your required effective annual rate of return on the securities is the same as that on your bank deposit. You must calculate the value of the securities to decide whether they are a good investment. What is their present value to you? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $
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:5. PV and Effective Annual Rate
Assume that you inherited some money. A friend of yours is working as an unpaid intern at a local
brokerage firm, and her boss is selling securities that call for 4 payments of $60 (1 payment at the
end of each of the next 4 years) plus an extra payment of $1,000 at the end of Year 4. Your friend
says she can get you some of these securities at a cost of $975 each. Your money is now invested in a
bank that pays a 12% nominal (quoted) interest rate but with quarterly compounding. You regard the
securities as being just as safe, and as liquid, as your bank deposit, so your required effective annual
rate of return on the securities the same as that on your bank deposit. You must calculate the value
of the securities to decide whether they are a good investment. What is their present value to you?
Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as
a positive value.
$
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