Your bank is offering you an account that will pay 20% interest in total for a two-year deposit. Determine the equivalent discount rate for a period length of a. Six months. b. One year. c. One month.

Question

Want to see more full solutions like this?

Answer 1

Textbook Question

Chapter 5, Problem 1P

Your bank is offering you an account that will pay 20% interest in total for a two-year deposit. Determine the equivalent discount rate for a period length of

a. Six months.
b. One year.
c. One month.

a)

Expert Solution

Summary Introduction

To determine:

The equivalent discount rate for six months.

Introduction:

The discount rate is the interest rate that is charged to depository institutions and commercial banks for the loan received. The discount rate is used to calculate the present value of future cash flows.

Answer to Problem 1P

The equivalent discount rate for six months is 4.66%.

Explanation of Solution

Given information:

A bank offers Person X an account that pays 20% interest rate in total for a two-year deposit.

Formula to compute the equivalent discount rate:

Equivalent discount rate = (1+r)n−1

Here

r = rate of interest.

n = number of years.

Equivalent discount rate = (1+r)n−1=(1+0.2)14−1=1.0466−1=0.0466

Hence, the equivalent discount rate for six months is 0.0466 or 4.66%.

b)

Expert Solution

Summary Introduction

To determine:

The equivalent discount rate for one year.

Answer to Problem 1P

The equivalent rate for one year is 9.54%.

Explanation of Solution

Given information:

A bank offers Person X an account that pays 20% interest rate in total for a two-year deposit.

Formula to compute the equivalent discount rate:

Equivalent discount rate = (1+r)n−1

Here

r = rate of interest.

n = number of years.

Equivalent discount rate = (1+r)n−1=(1+0.2)12−1=1.0954−1=0.0954

Hence, the equivalent discount rate for one year is 0.0954 or 9.54%.

c)

Expert Solution

Summary Introduction

To determine:

The equivalent discount rate for one month.

Answer to Problem 1P

The equivalent discount rate for one month is 0.761%.

Explanation of Solution

Given information:

A bank offers Person X an account that pays 20% interest rate in total for a two-year deposit.

Formula to compute the equivalent discount rate:

Corporate Finance: The Core (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series), Chapter 5, Problem 1P Equivalent discount rate = (1+r)n−1

Here

r = rate of interest.

n = number of years.

Equivalent discount rate = (1+r)n−1=(1+0.2)124−1=1.00761−1=0.00761

Hence, the equivalent discount rate for one month is 0.00761 or 0.761%.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

1. Give one new distribution channels for Virtual Assistance (freelance business) that is not commonly used. - show a chart/diagram to illustrate the flow of the distribution channels. - explain the rationale behind it. (e.g., increased market reach, improved customer experience, cost-efficiency). - connect the given distribution channel to the marketing mix: (How does it align with the overall marketing strategy? Consider product, price, promotion, and place.). - define the target audience: (Age, gender, location, interests, etc.). - lastly, identify potential participants: (Wholesalers, retailers, online platforms, etc.)

An individual is planning for retirement and aims to withdraw $100,000 at the beginning of each year, starting from the first year of retirement, for an expected retirement period of 20 years. To fund this retirement plan, he intends to make 20 equal annual deposits at the end of each year during his working years. Assume a simple annual interest rate of 20% during his working years and a simple annual interest rate of 5% during retirement. What should his annual deposit amount be to achieve his desired retirement withdrawals? Please write down the steps of your calculation and explain result economic meaning.

Assume an investor buys a share of stock for $18 at t=0 and at the end of the next year (t=1), he buys 12 shares with a unit price of $9 per share. At the end of Year 2 (t=2), the investor sells all shares for $40 per share. At the end of each year in the holding period, the stock paid a $5.00 per share dividend. What is the annual time-weighted rate of return? Please write down the steps of your calculation and explain result economic meaning.

Answer 2

Textbook Question

Chapter 5, Problem 1P

Your bank is offering you an account that will pay 20% interest in total for a two-year deposit. Determine the equivalent discount rate for a period length of

a. Six months.
b. One year.
c. One month.

a)

Expert Solution

Summary Introduction

To determine:

The equivalent discount rate for six months.

Introduction:

The discount rate is the interest rate that is charged to depository institutions and commercial banks for the loan received. The discount rate is used to calculate the present value of future cash flows.

Answer to Problem 1P

The equivalent discount rate for six months is 4.66%.

Explanation of Solution

Given information:

A bank offers Person X an account that pays 20% interest rate in total for a two-year deposit.

Formula to compute the equivalent discount rate:

Equivalent discount rate = (1+r)n−1

Here

r = rate of interest.

n = number of years.

Equivalent discount rate = (1+r)n−1=(1+0.2)14−1=1.0466−1=0.0466

Hence, the equivalent discount rate for six months is 0.0466 or 4.66%.

b)

Expert Solution

Summary Introduction

To determine:

The equivalent discount rate for one year.

Answer to Problem 1P

The equivalent rate for one year is 9.54%.

Explanation of Solution

Given information:

A bank offers Person X an account that pays 20% interest rate in total for a two-year deposit.

Formula to compute the equivalent discount rate:

Equivalent discount rate = (1+r)n−1

Here

r = rate of interest.

n = number of years.

Equivalent discount rate = (1+r)n−1=(1+0.2)12−1=1.0954−1=0.0954

Hence, the equivalent discount rate for one year is 0.0954 or 9.54%.

c)

Expert Solution

Summary Introduction

To determine:

The equivalent discount rate for one month.

Answer to Problem 1P

The equivalent discount rate for one month is 0.761%.

Explanation of Solution

Given information:

A bank offers Person X an account that pays 20% interest rate in total for a two-year deposit.

Formula to compute the equivalent discount rate:

Corporate Finance: The Core (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series), Chapter 5, Problem 1P Equivalent discount rate = (1+r)n−1

Here

r = rate of interest.

n = number of years.

Equivalent discount rate = (1+r)n−1=(1+0.2)124−1=1.00761−1=0.00761

Hence, the equivalent discount rate for one month is 0.00761 or 0.761%.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Textbook Question

Chapter 5, Problem 1P

Your bank is offering you an account that will pay 20% interest in total for a two-year deposit. Determine the equivalent discount rate for a period length of

a. Six months.
b. One year.
c. One month.

a)

Expert Solution

Summary Introduction

To determine:

The equivalent discount rate for six months.

Introduction:

The discount rate is the interest rate that is charged to depository institutions and commercial banks for the loan received. The discount rate is used to calculate the present value of future cash flows.

Answer to Problem 1P

The equivalent discount rate for six months is 4.66%.

Explanation of Solution

Given information:

A bank offers Person X an account that pays 20% interest rate in total for a two-year deposit.

Formula to compute the equivalent discount rate:

Equivalent discount rate = (1+r)n−1

Here

r = rate of interest.

n = number of years.

Equivalent discount rate = (1+r)n−1=(1+0.2)14−1=1.0466−1=0.0466

Hence, the equivalent discount rate for six months is 0.0466 or 4.66%.

b)

Expert Solution

Summary Introduction

To determine:

The equivalent discount rate for one year.

Answer to Problem 1P

The equivalent rate for one year is 9.54%.

Explanation of Solution

Given information:

A bank offers Person X an account that pays 20% interest rate in total for a two-year deposit.

Formula to compute the equivalent discount rate:

Equivalent discount rate = (1+r)n−1

Here

r = rate of interest.

n = number of years.

Equivalent discount rate = (1+r)n−1=(1+0.2)12−1=1.0954−1=0.0954

Hence, the equivalent discount rate for one year is 0.0954 or 9.54%.

c)

Expert Solution

Summary Introduction

To determine:

The equivalent discount rate for one month.

Answer to Problem 1P

The equivalent discount rate for one month is 0.761%.

Explanation of Solution

Given information:

A bank offers Person X an account that pays 20% interest rate in total for a two-year deposit.

Formula to compute the equivalent discount rate:

Corporate Finance: The Core (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series), Chapter 5, Problem 1P Equivalent discount rate = (1+r)n−1

Here

r = rate of interest.

n = number of years.

Equivalent discount rate = (1+r)n−1=(1+0.2)124−1=1.00761−1=0.00761

Hence, the equivalent discount rate for one month is 0.00761 or 0.761%.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Textbook Question

Chapter 5, Problem 1P

Your bank is offering you an account that will pay 20% interest in total for a two-year deposit. Determine the equivalent discount rate for a period length of

a. Six months.
b. One year.
c. One month.

a)

Expert Solution

Summary Introduction

To determine:

The equivalent discount rate for six months.

Introduction:

The discount rate is the interest rate that is charged to depository institutions and commercial banks for the loan received. The discount rate is used to calculate the present value of future cash flows.

Answer to Problem 1P

The equivalent discount rate for six months is 4.66%.

Explanation of Solution

Given information:

A bank offers Person X an account that pays 20% interest rate in total for a two-year deposit.

Formula to compute the equivalent discount rate:

Equivalent discount rate = (1+r)n−1

Here

r = rate of interest.

n = number of years.

Equivalent discount rate = (1+r)n−1=(1+0.2)14−1=1.0466−1=0.0466

Hence, the equivalent discount rate for six months is 0.0466 or 4.66%.

b)

Expert Solution

Summary Introduction

To determine:

The equivalent discount rate for one year.

Answer to Problem 1P

The equivalent rate for one year is 9.54%.

Explanation of Solution

Given information:

A bank offers Person X an account that pays 20% interest rate in total for a two-year deposit.

Formula to compute the equivalent discount rate:

Equivalent discount rate = (1+r)n−1

Here

r = rate of interest.

n = number of years.

Equivalent discount rate = (1+r)n−1=(1+0.2)12−1=1.0954−1=0.0954

Hence, the equivalent discount rate for one year is 0.0954 or 9.54%.

c)

Expert Solution

Summary Introduction

To determine:

The equivalent discount rate for one month.

Answer to Problem 1P

The equivalent discount rate for one month is 0.761%.

Explanation of Solution

Given information:

A bank offers Person X an account that pays 20% interest rate in total for a two-year deposit.

Formula to compute the equivalent discount rate:

Corporate Finance: The Core (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series), Chapter 5, Problem 1P Equivalent discount rate = (1+r)n−1

Here

r = rate of interest.

n = number of years.

Equivalent discount rate = (1+r)n−1=(1+0.2)124−1=1.00761−1=0.00761

Hence, the equivalent discount rate for one month is 0.00761 or 0.761%.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Textbook Question

Answer 6

Textbook Question

Answer 7

a)

Expert Solution

Summary Introduction

To determine:

The equivalent discount rate for six months.

Introduction:

The discount rate is the interest rate that is charged to depository institutions and commercial banks for the loan received. The discount rate is used to calculate the present value of future cash flows.

Answer to Problem 1P

The equivalent discount rate for six months is 4.66%.

Explanation of Solution

Given information:

A bank offers Person X an account that pays 20% interest rate in total for a two-year deposit.

Formula to compute the equivalent discount rate:

Equivalent discount rate = (1+r)n−1

Here

r = rate of interest.

n = number of years.

Equivalent discount rate = (1+r)n−1=(1+0.2)14−1=1.0466−1=0.0466

Hence, the equivalent discount rate for six months is 0.0466 or 4.66%.

b)

Expert Solution

Summary Introduction

To determine:

The equivalent discount rate for one year.

Answer to Problem 1P

The equivalent rate for one year is 9.54%.

Explanation of Solution

Given information:

A bank offers Person X an account that pays 20% interest rate in total for a two-year deposit.

Formula to compute the equivalent discount rate:

Equivalent discount rate = (1+r)n−1

Here

r = rate of interest.

n = number of years.

Equivalent discount rate = (1+r)n−1=(1+0.2)12−1=1.0954−1=0.0954

Hence, the equivalent discount rate for one year is 0.0954 or 9.54%.

c)

Expert Solution

Summary Introduction

To determine:

The equivalent discount rate for one month.

Answer to Problem 1P

The equivalent discount rate for one month is 0.761%.

Explanation of Solution

Given information:

A bank offers Person X an account that pays 20% interest rate in total for a two-year deposit.

Formula to compute the equivalent discount rate:

Corporate Finance: The Core (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series), Chapter 5, Problem 1P Equivalent discount rate = (1+r)n−1

Here

r = rate of interest.

n = number of years.

Equivalent discount rate = (1+r)n−1=(1+0.2)124−1=1.00761−1=0.00761

Hence, the equivalent discount rate for one month is 0.00761 or 0.761%.

Answer 8

a)

Expert Solution

Summary Introduction

To determine:

The equivalent discount rate for six months.

Introduction:

The discount rate is the interest rate that is charged to depository institutions and commercial banks for the loan received. The discount rate is used to calculate the present value of future cash flows.

Answer to Problem 1P

The equivalent discount rate for six months is 4.66%.

Explanation of Solution

Given information:

A bank offers Person X an account that pays 20% interest rate in total for a two-year deposit.

Formula to compute the equivalent discount rate:

Equivalent discount rate = (1+r)n−1

Here

r = rate of interest.

n = number of years.

Equivalent discount rate = (1+r)n−1=(1+0.2)14−1=1.0466−1=0.0466

Hence, the equivalent discount rate for six months is 0.0466 or 4.66%.

Answer 9

a)

Expert Solution

Answer 10

a)

Expert Solution

Answer 11

Expert Solution

Answer 12

Summary Introduction

To determine:

The equivalent discount rate for six months.

Introduction:

The discount rate is the interest rate that is charged to depository institutions and commercial banks for the loan received. The discount rate is used to calculate the present value of future cash flows.

Answer 13

Answer to Problem 1P

The equivalent discount rate for six months is 4.66%.

Answer 14

Explanation of Solution

Given information:

A bank offers Person X an account that pays 20% interest rate in total for a two-year deposit.

Formula to compute the equivalent discount rate:

Equivalent discount rate = (1+r)n−1

Here

r = rate of interest.

n = number of years.

Equivalent discount rate = (1+r)n−1=(1+0.2)14−1=1.0466−1=0.0466

Hence, the equivalent discount rate for six months is 0.0466 or 4.66%.

Answer 15

b)

Expert Solution

Summary Introduction

To determine:

The equivalent discount rate for one year.

Answer to Problem 1P

The equivalent rate for one year is 9.54%.

Explanation of Solution

Given information:

A bank offers Person X an account that pays 20% interest rate in total for a two-year deposit.

Formula to compute the equivalent discount rate:

Equivalent discount rate = (1+r)n−1

Here

r = rate of interest.

n = number of years.

Equivalent discount rate = (1+r)n−1=(1+0.2)12−1=1.0954−1=0.0954

Hence, the equivalent discount rate for one year is 0.0954 or 9.54%.

Answer 16

b)

Expert Solution

Answer 17

b)

Expert Solution

Answer 18

Expert Solution

Answer 19

Summary Introduction

To determine:

The equivalent discount rate for one year.

Answer 20

Answer to Problem 1P

The equivalent rate for one year is 9.54%.

Answer 21

Explanation of Solution

Given information:

A bank offers Person X an account that pays 20% interest rate in total for a two-year deposit.

Formula to compute the equivalent discount rate:

Equivalent discount rate = (1+r)n−1

Here

r = rate of interest.

n = number of years.

Equivalent discount rate = (1+r)n−1=(1+0.2)12−1=1.0954−1=0.0954

Hence, the equivalent discount rate for one year is 0.0954 or 9.54%.

Answer 22

c)

Expert Solution

Summary Introduction

To determine:

The equivalent discount rate for one month.

Answer to Problem 1P

The equivalent discount rate for one month is 0.761%.

Explanation of Solution

Given information:

A bank offers Person X an account that pays 20% interest rate in total for a two-year deposit.

Formula to compute the equivalent discount rate:

Corporate Finance: The Core (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series), Chapter 5, Problem 1P Equivalent discount rate = (1+r)n−1

Here

r = rate of interest.

n = number of years.

Equivalent discount rate = (1+r)n−1=(1+0.2)124−1=1.00761−1=0.00761

Hence, the equivalent discount rate for one month is 0.00761 or 0.761%.

Answer 23

c)

Expert Solution

Answer 24

c)

Expert Solution

Answer 25

Expert Solution

Answer 26

Summary Introduction

To determine:

The equivalent discount rate for one month.

Answer 27

Answer to Problem 1P

The equivalent discount rate for one month is 0.761%.

Answer 28

Explanation of Solution

Given information:

A bank offers Person X an account that pays 20% interest rate in total for a two-year deposit.

Formula to compute the equivalent discount rate:

Corporate Finance: The Core (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series), Chapter 5, Problem 1P Equivalent discount rate = (1+r)n−1

Here

r = rate of interest.

n = number of years.

Equivalent discount rate = (1+r)n−1=(1+0.2)124−1=1.00761−1=0.00761