a.
To determine: The one year interest rate.
a.
Answer to Problem 21PS
The one year interest rate is 10.50%.
Explanation of Solution
Determine the one year interest rate
One Year Interest Rate=[(1Discount Factor)−1]=[(10.905)−1]=[1.104972−1]=0.104972 or 10.50%
Therefore the one year interest rate is 10.50%.
b.
To determine: The two year discount factor.
b.
Answer to Problem 21PS
The two year discount factor is 0.8190.
Explanation of Solution
Determine the two year discount factor
Two Year Discount Factor=[1(1+Discount Rate)2]=[1(1+10.50%)2]=[11.221025]=0.818984 or 0.8190
Therefore the two year discount factor is 0.8190.
c.
To determine: The two year
c.
Answer to Problem 21PS
The two year
Explanation of Solution
Determine the two year
Two Year Annuity Factor=[Discount FactorYear 1+Discount FactorYear 2]=[0.905+0.818984]=1.723984 or 1.7240
Therefore the two year annuity factor is 1.7240.
d.
To determine: The three year
d.
Answer to Problem 21PS
The three year
Explanation of Solution
Determine the three year
Three Year Annuity Factor=[PVYear 3PVActual]=[$24.65$10]=2.4650
Therefore the three year annuity factor is 2.4650.
e.
To determine: The three year discount factor.
e.
Answer to Problem 21PS
The three year discount factor is 0.7410.
Explanation of Solution
Determine the three year discount factor
Three Year Discount Factor=[Discount FactorYear 2−Discount FactorYear 3]=[2.4650−1.7240]=0.741016 or 0.7410
Therefore the three year discount factor is 0.7410.
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Chapter 2 Solutions
PRIN.OF CORPORATE FINANCE
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