Calculate effective annual interest rate, Corporate Finance

Two years ago, Homeless People Ltd needed to accumulate a total of $600,000 by the end of four years to acquire new facility to house the homeless people in the city.  To do so, Homeless People Ltd makes equal semi-annual deposits into a fund which earns 8% per annum, interest compounded semi-annually.  To date, the organization has made four equal semi-annual deposits into the fund.  Unfortunately, the price of the facility has gone up so much, now the organization requires to accumulate a total of $1,000,000 in two years' time.  However, the organization can from now on earn 10% per annum, interest compounded semi-annually.  All monies accumulated to date will from now on earn a return of 10% per annum, interest compounded semi-annually.

a) What is the increased equal semi-annual deposit that Homeless People Ltd will need to make so that the fund will contain $1,000,000 in two years' time? 

b) What is the effective annual interest rate for the "two years' time" stated in part (a)?

c) Why does money have a Time Value?

Posted Date: 2/14/2013 6:23:01 AM | Location : United States







Related Discussions:- Calculate effective annual interest rate, Assignment Help, Ask Question on Calculate effective annual interest rate, Get Answer, Expert's Help, Calculate effective annual interest rate Discussions

Write discussion on Calculate effective annual interest rate
Your posts are moderated
Related Questions
Differences btn debt finance and preferance share capital

Question: (a) Describe why the discount rate equals opportunity cost of capital? (b) "Nominal rate less inflation rate is equal to real rate of return" - Is it true? Why or

It is given that company A will acquire company B with shares of common stock. Present earnings of A is rs. 20 million and of company B is rs. 5 million. Earning price per share of

the variance of stock a is .004,the variance of market is .007,co variance between two is .0026 calculate correlation coefficient

Source of short term finance

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $825 per set and have a variable cost of $395 per set. The company has spent $150,000 for a mar

how would the concept of economic value added reduce the problem of agency conflict

In January 2009 you bought a German stock portfolio for 6,000,000 Euros and sold it in December 2009 for 7,000,000 Euros.  Assume that over the same period the dollar's exchange ra

Mergers & Acquisitions now is playing crucial role in modern corporate finance world. For any prospects, there is only one reason for a firm making an offer to M&A another firm,

XYZ plc has a Visitor Centre based in Perth.  The Centre houses exhibitions and educational resources to be used by schools, colleges and visitors.  It is a popular facility due to