Question 1200835: Question 1 (15 marks)
a) Asset X generates a perpetual stream of cash flows of $100,000 every 3 months. The relevant
interest rate is 12%, compounded quarterly. How much would you pay to buy Asset X today
if the first payment occurs right away? (5 marks)
b) You are considering depositing $1 million into a bank account. After one year, how much
more interest on interest will you find in Account (A) that provides an interest of 12%
compounded quarterly than Account (B) that provides an interest of 12% compounded semiannually?
(5 marks)
c) The Sharky Finance Ltd. has agreed to provide a loan to Meena on a “four-for-five” monthly
basis. That is, for every $4 Meena borrows today, she has to repay a total of $5 a month later.
What is the true yearly rate of this loan?
Answer by ikleyn(52781)   (Show Source):
You can put this solution on YOUR website! .
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