BFIN 300 Chapter 6 Questions With
Solutions
Present Value Factors Example: o You have a $500 annuity with a 10% rate for three years What
should you pay for this investment? PVF= 1 / (1+10%) x 3 = 0.7513
APVF= (1- 0.7513) /.10 = 2.487
$500 x 2.487 = $1243.43
Effective Annual Rate (interest...
Present Value Factors Example: o You have a $500 annuity with a 10% rate for three years What
should you pay for this investment? PVF= 1 / (1+10%) x 3 = 0.7513
APVF= (1- 0.7513) /.10 = 2.487
$500 x 2.487 = $1243.43
Effective Annual Rate (interest rate) EAR= (1 + (quoted rate/ m)) x m - 1
Effective Annual Rate (interest rate) Example: You are offered a rate of 12% compounded
monthly What is your effective annual rate? EAR= (1 + (/12/12)) X 12 -1 = 12.68%
GFO Think of Mortgage
Annuity Series of cash flow at the end of each period
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