For a quoted annual interest rate of 5% with daily compounding, find the effective (i) annual rate, (ii) monthly rate, (iii) daily rate. Use the rates found in (i) – (iii) to find the present value (PV) you need to invest today to reach $75,000 in 5 years.
For a quoted annual interest rate of 5% with daily compounding, find the effective (i) annual rate, (ii) monthly rate, (iii) daily rate. Use the rates found in (i) – (iii) to find the present value (PV) you need to invest today to reach $75,000 in 5 years.
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
Related questions
Question
For a quoted annual interest rate of 5% with daily compounding, find the effective (i) annual rate, (ii) monthly rate, (iii) daily rate. Use the rates found in (i) – (iii) to find the present value (PV) you need to invest today to reach $75,000 in 5 years.
Expert Solution
Step 1: Explain the Present value
Present value refers to the current value of the annuity that is determined by discounting the cash flow with the interest rate over the maturity period.
Effective interest rate refers to the interest rate continuously compounded for a given period of time, Eg monthly, weekly, annually, daily etc.
Step by step
Solved in 3 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education