Nominal interest rate, Financial Management

You are considering an investment in a 40-year security. The security will pay $25 a year at the end of each of the first 3 years. The security will then pay $30 a year at the end of each of the next 20 years. The nominal interest rate is assumed to be 8%, and the current price (present value) of the security is $360.39. Given this information, what is the equal annual payment to be received from Year 24 through Year 40 (for example, for 17 years)?

$25 a year for the first 3 years

$30 at the end of each of the next 20 years

With a financial calculator, enter the following:

PMT = - $25,   N = 3 years,   I/Y = 8%,   FV = 0,   CPT PV for the 1st 3 years = $64.42

PMT = - $20,   N = 20 years,   I/Y = 8%,   FV = 0, CPT PV for the next 20 years = $193.36

N = 17 years,   I/Y = 8%,   FV = 0,   PV = - $360.39,   CPT PMT = $39.50

 

Posted Date: 2/22/2013 4:50:39 AM | Location : United States







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

Write discussion on Nominal interest rate
Your posts are moderated
Related Questions
Q. Describe about Profitability Index? Profitability Index OR (PI):- Second method of estimate a project through discounted cash flows is profitability index method. This metho

The total return in case of mortgage-backed and asset-backed securities depend on the projected principal repayment and the interest earned on r

What are the Objectives of Financial Management To make wise decisions a clear understanding of the objectives that are sought to be achieved in compulsory. Objectives provide

D esign, Drawing and Bill of Quantities (BOQ) for works We discussed about INCO terms which are set standards for the project. Now let us learn about other parameters for cont

State the Example to calculate the present value 2, 00,000 $ is the amount which you require after 20 years for your retirement. How much must you invest now at 5% per annum co


The Manager or Management Company The firm sponsoring the Fund could often structure it as a management company. Its primary responsibility is to determine investment strategie

Trial Balances: If the trial balance does not result in a "0", the various records will need to be reviewed to pinpoint the spot where the unbalance occurred and any necessary

Market development A strategy which seeks to sell existing products in new geographical markets or new market segments. A strategy to find new uses for existing products or ser

Question- Under a hire purchase deal structured by X Finance Ltd. for Y Corporation, the finance company has offered to finance the purchase of equipment that costs Rs. 200 lakh.