Question

An investment pays $1,950 per year for the first 5 years, $3,900 per year for the next 6 years, and $5,850 per year the following 10 years (all payments are at the end of each year). If the discount rate is 10.95% 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

$22,643.73

$26,956.82

$28,574.23

$23,182.86

$25,608.98

Answer 1

Ans $26,956.82

EAR =	( 1 + r )^n - 1
	Compounded Quarterly
EAR=	( 1 + 10.95%/4)^4 - 1
EAR=	11.4078963610%

Year	Project Cash Flows (i)	DF@ 11.41%	DF@ 11.41% (ii)	PV of Project ( (i) * (ii) )
1	1950	1/((1+11.41%)^1)	0.898	1,750.32
2	1950	1/((1+11.41%)^2)	0.806	1,571.10
3	1950	1/((1+11.41%)^3)	0.723	1,410.22
4	1950	1/((1+11.41%)^4)	0.649	1,265.82
5	1950	1/((1+11.41%)^5)	0.583	1,136.20
6	3900	1/((1+11.41%)^6)	0.523	2,039.71
7	3900	1/((1+11.41%)^7)	0.469	1,830.85
8	3900	1/((1+11.41%)^8)	0.421	1,643.38
9	3900	1/((1+11.41%)^9)	0.378	1,475.10
10	3900	1/((1+11.41%)^10)	0.340	1,324.05
11	3900	1/((1+11.41%)^11)	0.305	1,188.47
12	5850	1/((1+11.41%)^12)	0.274	1,600.16
13	5850	1/((1+11.41%)^13)	0.246	1,436.31
14	5850	1/((1+11.41%)^14)	0.220	1,289.24
15	5850	1/((1+11.41%)^15)	0.198	1,157.22
16	5850	1/((1+11.41%)^16)	0.178	1,038.72
17	5850	1/((1+11.41%)^17)	0.159	932.36
18	5850	1/((1+11.41%)^18)	0.143	836.89
19	5850	1/((1+11.41%)^19)	0.128	751.19
20	5850	1/((1+11.41%)^20)	0.115	674.27
21	5850	1/((1+11.41%)^21)	0.103	605.23
		PV		26,956.82