suppose the term structure of interest rates is shown below: term 1 year 2 years 3 years 5 years 10 years 20 years rate (ear%) 5.00% 4.80% 4.60% 4.50% 4.25% 4.15% the present value (pv) of receiving $1100 per year with certainty at the end of the next three years is closest to .

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Answer 1

The present value (PV) of receiving $1100 per year with certainty at the end of the next three years is closest to $2381.

In the given problem, a person is receiving $1100 at the end of years 1,2, and 3.

So, the effective annual rate for 3 years is 4.60% per annum. This means we shall discount the $1100 received each year at a 4.60% per annum rate. We shall apply the following formula:

Present value of $1100 each year for 3 years = A *Present value annuity factor for 3 years at 4.60% p.a. where:

A = Annual inflow that is $1100

Present value annuity factor for 3 years at 4.60% p.a. =

[1/1.0460] + [1/(1.0460)^2 ] + [1/(1.0460)^3] = 2.74 (approximately)

Present value = 1100 * 2.74 = $2381

Related Questions

a fair game a. is a riskless investment. b. will not be undertaken by a risk-averse investor. c. will not be undertaken by a risk-averse investor and is a riskless investment. d. is a risky investment with a zero risk premium. e. will not be undertaken by a risk-averse investor and is a risky investment with a zero risk premium

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RAIs prefer investments with lower standard deviations. As a result, a risky expenditure that ends up paying off precisely at its predicted values is referred to as a FG, and RAIs will just not find it memorable since it provides no management fee. As a result, Option D is correct.

Is a completely acceptable a dangerous investment with really no risk premium?

A fair game is a high-risk investment with such a payoff equal towards the expected value. It is unlikely to appeal to a risk-averse shareholder because it provides no risk premium.

What exactly is risk-aversion investing?

A risk averse investor is one who likes lower margins with identified hazards over greater returns with future uncertainties.

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though hatteras hammocks still manufactures its hammocks by hand in north carolina, it sells the hammocks online to buyers worldwide. what international business strategy is hatteras hammocks using?

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Using hatteras hammocks international business strategy Hatteras Hammocks sells its tarps web to customer base although company still makes all of its hammock by trade in North Carolina.

What does it mean to conduct business internationally?

A company is considered to be multinational if its operations span international borders. Its most basic form is the transfer of commodities and services between countries.

What are the five principles of international business?

Product, Price, Promotion, Location, and People are the five areas where decisions need to be made. The 5 Ps can be somewhat controlled, but your external and internal marketing environments will always have an impact on them. For additional information on the Ps, continue reading.

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