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Ede4ka [16]
3 years ago
6

What is the percentage change in the PV of $100 due in 1 year when the interest rate changes from 5% to 10%?

Business
1 answer:
son4ous [18]3 years ago
3 0

Answer:

c. Decreases by 4.5%

Explanation:

Calculation for What is the percentage change in the PV

First step is to calculate the present value when r is 5%

PV = 100 / (1 + 5%)^1

PV = $95.24

Second step is to calculate present value when r is 10%

PV = 100 / (1 + 10%)^1

PV = $ 90.91

Last step is to calculate the percentage change in the PV

Percentage change in the PV = (90.91 - 95.24) * 100 / 95.24

Percentage change in the PV = - 4.55% (Decrease)

Therefore the Percentage change in the PV Decreases by 4.5%

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Given that

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The formula to compute IRR is

= IRR()

After applying the above formula, the internal rate of return is 15%

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Based on the rate the government is paying for its securities and the rate the lender is willing to make, the inflation premium must be <u>5%. </u>

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It can be found as:

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Find out more on calculating rates at brainly.com/question/26113005.

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