Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Concept explainers

Effective Interest Rate
The term interest rate can be defined as the amount that is charged by the lender as a percentage on the principal amount. Interest rate which is charged annually is known as annual percentage rate.
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use excel and explain why

Your rich uncle is offering you a gift that you will accept today. Your uncle wants you to choose between one of two investments: I. An annuity that will start paying $600 for 10 years. The annuity's first payment will take place 5 years from today. The annual interest rate is 12%. II. A growing perpetuity that 1 year from now will start paying $200 and is expected to grow at an annual rate of 2% forever. The discount rate is 12%. Calculate the present value of the two investments. Which one would you accept?
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Transcribed Image Text:Your rich uncle is offering you a gift that you will accept today. Your uncle wants you to choose between one of two investments: I. An annuity that will start paying $600 for 10 years. The annuity's first payment will take place 5 years from today. The annual interest rate is 12%. II. A growing perpetuity that 1 year from now will start paying $200 and is expected to grow at an annual rate of 2% forever. The discount rate is 12%. Calculate the present value of the two investments. Which one would you accept?
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