In: Finance
Effective Annual Rate = ( 1 + r ) ^ n - 1
r = Int Rate per period
n = No.of periods per anum
Particulars | Amount |
Ret period | 2.2500% |
No. of periods | 4.0000 |
EAR = [ ( 1 + r ) ^ n ] - 1
= [ ( 1 + 0.0225 ) ^ 4 ] - 1
= [ ( 1.0225 ) ^ 4 ] - 1
= [ 1.0931 ] - 1
= 0.093083
I.e EAR is 9.308332 %
As the CFs are yearly CFs, Effective rate per anum is calculated.
Present value of Investment:
PV of Annuity:
Annuity is series of cash flows that are deposited at regular
intervals for specific period of time. Here cash flows are happened
at the end of the period.PV of annuity is current value of cash
flows to be received at regular intervals discounted at specified
int rate or discount rate to current date.
PV of Annuity = Cash Flow * [ 1 - [(1+r)^-n]] /r
r - Int rate per period
n - No. of periods
Particulars | Amount |
Cash Flow | $ 90,000.00 |
Int Rate | 9.3083% |
Periods | 4 |
PV of Annuity = Cash Flow * [ 1 - [(1+r)^-n]] /r
= $ 90000 * [ 1 - [(1+0.0931)^-4]] /0.0931
= $ 90000 * [ 1 - [(1.0931)^-4]] /0.0931
= $ 90000 * [ 1 - [0.7005]] /0.0931
= $ 90000 * [0.2995]] /0.0931
= $ 289612.35
PV of Investment is $ 289612.35