Description
What is the present value of payments with a quoted annual interest rate, with monthly compounding Of interest. This is calculated after winning large amount of money that will be given in 26 payments.
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Explanation & Answer
Answer attached.
Running Head: FINANCE
1
Finance
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FINANCE
2
Part A
We find the effective annual return,
PV = -100
I = 9/12 = 0.75
FV = PV*(1+r)^n = 100 *(1+0.75%)^12
= 109.38
EAR = 109.38 – 100 = 9.38%
Using the EAR, we calculate the present value
PMT = 11,000,000/26 = 423,076.9231
EAR = 9.38%
Present value of an ordinary annuity= Pmt *((1 – (1 / (1+i)^n))/i) = 423,076.92 * ((1 –
(1/(1+9.38%)^26))/9.38%)
= 4,072,055.246
Present value of an annuity d...
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