In: Finance
An investment pays $2,500 per year for the first 4 years, $5,000
per year for the next 3 years, and $7,500 per year the following 9
years (all payments are at the end of each year). If the discount
rate is 11.85% compounding quarterly, what is the fair price of
this investment?
Work with 4 decimal places and round your answer to two decimal
places. For example, if your answer is $345.667 round as 345.67 and
if your answer is .05718 or 5.718% round as 5.72.
Group of answer choices
$31,750.35
$33,694.25
$26,566.62
$39,201.97
$32,398.32
Ans $32,398.32
EAR = | ( 1 + r )^n - 1 |
Compounded Quarterly | |
EAR= | ( 1 + 11.85%/4)^4 - 1 |
EAR= | 12.3870614417% |
Year | Project Cash Flows (i) | DF@ 12.39% | DF@ 12.39% (ii) | PV of Project ( (i) * (ii) ) |
1 | 2500 | 1/((1+12.39%)^1) | 0.890 | 2,224.46 |
2 | 2500 | 1/((1+12.39%)^2) | 0.792 | 1,979.28 |
3 | 2500 | 1/((1+12.39%)^3) | 0.704 | 1,761.13 |
4 | 2500 | 1/((1+12.39%)^4) | 0.627 | 1,567.02 |
5 | 5000 | 1/((1+12.39%)^5) | 0.558 | 2,788.61 |
6 | 5000 | 1/((1+12.39%)^6) | 0.496 | 2,481.26 |
7 | 5000 | 1/((1+12.39%)^7) | 0.442 | 2,207.78 |
8 | 7500 | 1/((1+12.39%)^8) | 0.393 | 2,946.66 |
9 | 7500 | 1/((1+12.39%)^9) | 0.350 | 2,621.89 |
10 | 7500 | 1/((1+12.39%)^10) | 0.311 | 2,332.91 |
11 | 7500 | 1/((1+12.39%)^11) | 0.277 | 2,075.78 |
12 | 7500 | 1/((1+12.39%)^12) | 0.246 | 1,846.99 |
13 | 7500 | 1/((1+12.39%)^13) | 0.219 | 1,643.42 |
14 | 7500 | 1/((1+12.39%)^14) | 0.195 | 1,462.29 |
15 | 7500 | 1/((1+12.39%)^15) | 0.173 | 1,301.12 |
16 | 7500 | 1/((1+12.39%)^16) | 0.154 | 1,157.71 |
PV | 32,398.32 |