Would you rather have a savings account that pays 5 percent interest compounded semiannually or one that pays 5 percent interest compounded daily? Explain. (LO 4-5) Single Cash FlowPV =FV(1+r)nAnnuity:FV = PV(1+r) n(1+r)" − 1(1+r)n−1 *FVA = PMTFVAD = PMT(1+r)rPVA = PMTr111(1+r)nPVAD = PMT(1+r)*(1+r)rrr(1+r)nPMT = PV(1+r)n-1PerpetuitiesPVP =PMTr

When comparing two accounts with the same nominal interest rate (5% in this case), the account with…

Answered: Single Cash Flow PV = FV (1+r)n Annuity…

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter4: Time Value Of Money

Section4.12: Uneven, Or Irregular, Cash Flows

Problem 1ST

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Consider the calculation of an external rate of return (ERR). The positive cash flows in the cash flow profile are moved forward to t = n using what value of i in the (F|P,i,n–t) factors? a. 0 b. The unknown value of ERR (i′) c. MARR d. IRR.
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Consider two assets with the following cash flow streams:Asset A generates $4 at t=1, $3 at t=2, and $10at t=3. Asset B generates $2 at t=1, $X at t=2, and $10at t=3.Suppose X=6 and the interest rate r is constant. (a)For r=0.1, calculate the present value of the two assets. (b)Determine the set of all interest rates {r} such that asset A is more valuable than asset B. (c)Draw the present value of the assets as a function of the interest rate. (d)Suppose r=0.2.Find the value X such that the present value of asset B is 12. (e)Suppose the (one-period) interest rates are variable and given as follows: r01=0.1, r12=0.2, r23=0.3. Calculate the yield to maturity of asset A.

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Single Cash Flow PV = FV (1+r)n Annuity : FV = PV(1+r) n (1+r)" − 1 (1+r)n−1 * FVA = PMT FVAD = PMT (1+r) r PVA = PMT r 1 1 1 (1+r)n PVAD = PMT (1+r)*(1+r) r r r(1+r)n PMT = PV (1+r)n-1 Perpetuities PVP = PMT r