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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Question
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I need help on the steps to solve part b). I have the answer but can't get there.
![Note that you can derive a formula that solves for im) given i and m. It is:
flom) = m [(1 + i)* 1]
¿(m)
1+i)m – 1
= m |(1
It is not necessary to memorize this formula. Formula (1.15) is intuitive and easy to remember,
and we can always substitute the given values of i and m into (1.15) to solve for i(m). This is
the approach we used in Example (1.17).
Exercise (1.18)
a) Given i(12) = 6%, find the annual effective rate i.
b) Given an annual effective rate of i = 5%, find ¿(12).
Answers:
a) 6.168% b) 4.889%
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FM Study Manual 2021
< 32/797 >
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Transcribed Image Text:Note that you can derive a formula that solves for im) given i and m. It is:
flom) = m [(1 + i)* 1]
¿(m)
1+i)m – 1
= m |(1
It is not necessary to memorize this formula. Formula (1.15) is intuitive and easy to remember,
and we can always substitute the given values of i and m into (1.15) to solve for i(m). This is
the approach we used in Example (1.17).
Exercise (1.18)
a) Given i(12) = 6%, find the annual effective rate i.
b) Given an annual effective rate of i = 5%, find ¿(12).
Answers:
a) 6.168% b) 4.889%
O ACTEX Learning
FM Study Manual 2021
< 32/797 >
acBook Pro
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