Suppose you just bought an annuity with 11 annual payments of $16,100 at the current interest rate of 12.75 percent per year. a.
What is the value of the investment at the current interest rate of 12.75 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What happens to the value of your investment if interest rates suddenly drop to 7.75 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What happens to the value of your investment if interest rates suddenly rise to 17.75 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
1 answer:
Answer and Explanation:
a. The value of the investment is shown below:
Given that,
Future value = $0
Rate of interest = 12.75%
NPER = 11 years
PMT = $16,100
The formula is shown below:
= -PV(Rate;NPER;PMT;FV;type)
So, after applying the above formula, the present value is $92,543.17
b. If the interest rate drop to 7.75%, so the present value is $116,344.48
c. If the interest rate rise to 17.75% so the present value is $75,670.82
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Here short term investment is debited as it increased the asset and credited the cash as decreased the asset.
here cash is debited as it increased the asset and credited the interest revenue as it also increased the revenue.
What Are Short-Term Investments?
- Marketable securities, commonly referred to as temporary investments or short-term investments, are financial investments that can be quickly converted to cash, usually within five years.
- After only three to twelve months, many short-term investments are sold or turned into cash. CDs, money market accounts, high-yield savings accounts, government bonds, and Treasury bills are a few typical examples of short-term investments.
- Short-term investments, also known as marketable securities or temporary investments, are financial investments that can be easily converted to cash, typically within 5 years.
- Typically, these investments are high-quality and highly liquid assets or investment vehicles.
- Short-term investments may also specifically refer to financial assets of a similar kind, but with a few additional requirements, that are owned by a company.
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