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    nominal annual interest rate

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    1. Determine the value at the end of four years of a $10,000 investment (today) in a bank certificate of deposit (CD) that pays a nominal annual interest rate of 12 percent, compounded.

    Do this for:

    semi-annual
    Quarterly
    Monthly

    2. Explain how diversification can reduce the risk of a portfolio of assets to below the weighted average of the risk of the individual assets.

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    https://brainmass.com/business/interest-rates/nominal-annual-interest-rate-351561

    Solution Preview

    1.We use the future value formula, where fv = pv(1+r)^n

    if compounded semi-annual, then the semi annual interest rate would be 6% (12%/2) and you should have 8 periods (i.e. 2 half years per year times 4 years), so fv = 10000 X (1 + 0.06)^8 = 15938.48

    similarly, if compounded ...

    Solution Summary

    The solution determines the value at the end of four years of a $10,000 investment in a bank certificate of deposit that pays a nominal annual interest rate. The values are determines for semi-annual, quarterly and monthly. The diversification can reduce the risk of a portfolio of assets to below the weighted average of the risk of an individual asset.

    $2.19

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