You have an opportunity to purchase a government security that will pay $196,000 in 5 years. Required: Round your answers to the nearest cent, if rounding is required. 1. Calculate what you would pay for the security if the appropriate interest (discount) rate is 6% compounded annually. $fill in the blank 1 2. Calculate what you would pay for the security if the appropriate interest (discount) rate is 10% compounded annually. $fill in the blank 2 3. Calculate what you would pay for the security if the appropriate interest (discount) rate is 6% compounded semiannually.
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Exercise A3-19 (
Present Values
Use Present Value Tables or your calculator to complete the requirements below.
You have an opportunity to purchase a government security that will pay $196,000 in 5 years.
Required:
Round your answers to the nearest cent, if rounding is required.
1. Calculate what you would pay for the security if the appropriate interest (discount) rate is 6% compounded annually.
$fill in the blank 1
2. Calculate what you would pay for the security if the appropriate interest (discount) rate is 10% compounded annually.
$fill in the blank 2
3. Calculate what you would pay for the security if the appropriate interest (discount) rate is 6% compounded semiannually.
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