Samuel will receive an inheritance where he will be paid 1,000 every 28 months forever. The...

Samuel will receive an inheritance where he will be paid 1,000 every 28 months forever.

The first payment will start immediately.

Samuel calculated the present value of this inheritance to be 5,124.64.

What was the effective annual interest rate Samuel used in his present value calculation?

a.7.94%

b.8.00%

c.8.62%

d.9.32%

e.9.75%

Expert Solution

Let rate of 28 year period be r,

So,

5,124.64 = 1,000 + 1,000/r

r = 24.24%

EAR = (1 + 0.2424)³/7 - 1

EAR = 9.75%

jeff jeffy answered 2 years ago

You are expecting to receive an inheritance in 6 months and wish to use a long...

You are expecting to receive an inheritance in 6 months and wish to use a long position in a forward contract to pre-invest the proceeds. A dealer offers a forward contract for 1,000 shares of Gargantuan Industries. The current price of Gargantuan is $89 per share and Gargantuan is expected to pay dividends per share over the next 6 months with a present value of $4.56 per share. If the risk-free rate is 3.80% compounded annually, what is the no-arbitrage...

Assume the appropiate discount rate is 6%. A company will receive a payment every year forever,...

Assume the appropiate discount rate is 6%. A company will receive a payment every year forever, which will grow at 2% annually. The amount of the first payment will be $5,000. What is the current value of this series of payments?

Assume the appropiate discount rate is 3%. A company will receive a payment every year forever,...

Assume the appropiate discount rate is 3%. A company will receive a payment every year forever, which will grow at 2% annually. The amount of the first payment will be $2,000. What is the current value of this series of payments?

Assume the appropiate discount rate is 7%. A company will receive a payment every year forever,...

Assume the appropiate discount rate is 7%. A company will receive a payment every year forever, which will grow at 1% annually. The amount of the first payment will be $6,000. What is the current value of this series of payments?

You are promised a cash flow every year forever! Next year you will receive $100. After...

You are promised a cash flow every year forever! Next year you will receive $100. After that, the payment will grow by 1% compounded annually. There is no risk associated with the payments. You can invest and earn a risk-free rate of return of 5%. What is the present value of the perpetuity?

You expect to receive $600 every three months beginning fifteen months from today and expect to...

You expect to receive $600 every three months beginning fifteen months from today and expect to receive these payments forever. If the interest rate is 9% EAR, what is this stream of cash flows worth today? （please slso show the resolution using financial calculator)

You receive $4,000 every three months beginning three months from today for 7 years and an...

You receive $4,000 every three months beginning three months from today for 7 years and an additional $1,200 7 years from today. If the interest rate is 3.0% (EAR), which of the following is closest to the present value (PV) of this stream of cash flows? How should I solve this using the hp10bii+ calculator? If you could show me the steps that would be great!

You are due to receive $500 every 3 months from your parents starting 3 months from...

You are due to receive $500 every 3 months from your parents starting 3 months from the day you were born. If the three-month interest rate is 0.2%, what is the value of these payments on your 18th birthday?

Consider an investment project where the cash flow pattern repeats itself every five years forever. Use...

Consider an investment project where the cash flow pattern repeats itself every five years forever. Use the capitalized equivalent method to compute the present worth of this project with an interest rate of 16.5%. The cash flow for the five years is given below: ($) 106 106 67 67 29

You plan to make five deposits of $1,000 each, one every 6 months, with the first...

You plan to make five deposits of $1,000 each, one every 6 months, with the first payment being made in 6 months. You will then make no more deposits. If the bank pays 7% nominal interest, compounded semiannually, how much will be in your account after 3 years? Round your answer to the nearest cent. $ One year from today you must make a payment of $9,000. To prepare for this payment, you plan to make two equal quarterly deposits...

Question