You have just purchased ten municipal bonds, each with a $1,000 par value, for $9,500. You purchased them immediately after the
1 answer:
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Answer:
Given:
Amount = $5000
Tenure = 5 years.
Future value =
where
n is number of periods
r is rate per period.
(a) 6% compounded annually.
Interest is compounded annually
No of periods in 5 years = 5
Future value = 5000 = 5000 × 1.33823 = $6691.15
(b) 8% compounded annually
Interest is compounded annually
No of periods in 5 years = 5
Future value =5000 = 5000×1.46933 = 7346.65
(c) 10% compounded annually
Interest is compounded annually
No of periods in 5 years = 5
Future value = 5000 = 5000×1.61051 = $8052.55
(d) 10% compounded semiannually
Interest is compounded semiannually
No of periods in 5 years is 5*2 = 10
Rate per period = 10÷2 = 5%
Future value =5000 = 5000×1.62889 = $8144.45
(e) 10% compounded quarterly
Interest is compounded annually
∴No of periods in 5 years = 5×4 = 20
Rate per period = 10÷4 = 2.5
Future value = 5000 = 5000×1.63862 = $8193.10
Answer:
The answer is Project X is the most attractive to an investor.
Explanation:
We can use the definition of Net Present Value (NPV) to solve this problem and figure out which would be the best investment.
Net present value is the present value of future money. In other words, over certain period of time, how much is your investment worth today. It takes into consideration cash inflow and outflow over that period of time as well as interest that could be earned on alternative investments if you had the money today. See attachment to see the NPV formula.
In the attachment, we calculate the NPV for each one of the projects using a rate of return i=3% for all of them. Any rate of return could be used as long as they are the same for all projects.
A positive NPV value means a good investment and the higher that number is the better the investment. In this case, we can see that Project X has the higher NPV of all the projects. Therefore, project X is the most attractive for an investor.
