Question

You are examining an investment opportunity. It would require you to pay money today and then receive payments semi-annually from that investment. Since the payments you expect to receive are semi-annual, you would like to know your semi-annual version of your own required return. You require 10% per year. What semi-annual rate (i.e. periodic return per six months) do you require (i.e. need to earn such that this implies 10% earned per year when you get to compound semi-annually)? g

Answer 1

Answer:

The semi annual rate is 4.88%

Explanation:

semi annual rate = [((1+r)^(1/n)) -1]

                            =  [((1+10%)^(1/2)) -1]

                            = 4.88%

Therefore, the semi-annual rate (i.e. periodic return per six months) do you require (i.e. need to earn such that this implies 10% earned per year when you get to compound semi-annually) is 4.88%.