Explore BrainMass

Explore BrainMass

    Effective Annual Rate

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    An investment instrument pays $1.35 million at the end of each of the next ten years. An investor has an alternative investment with the same amount of risk that will pay interest at 8.5 percent, compounded quartely.

    What effective rate should you receive in this investment?
    How much should you pay for the mortgage instrument?

    After the EAR is established, how is the problem set up for the effective rate. And how will you determine what to pay fot the mortgage instrument?

    © BrainMass Inc. brainmass.com June 3, 2020, 11:52 pm ad1c9bdddf
    https://brainmass.com/business/annuity/effective-annual-rate-investment-304248

    Solution Preview

    Please see the attached file:
    An investment instrument pays $1.35 million at the end of each of the next ten years.  An investor has an alternative investment with the same amount of risk that will pay interest at 8.5 percent, compound quartely.  
    After the EAR is established, how is the problem set up for the effective rate.  And how will you determine what to ...

    Solution Summary

    The solution determines the effective annual rate and then the present value of future cash flows.

    $2.19

    ADVERTISEMENT