Part: 1(Each Answer 125 words)
1. Future value: Your bank pays 5 percent annual interest compounded semiannually on your savings account. You don’t expect to add to the current balance of $2,700 over the next four years. How much money can you expect to have at the end of this period?
2. Present value: You want to buy some bonds that will have a value of $1,000 at the end of seven years. The bonds pay 4.5 percent interest annually. How much should you pay for them today?
3. Effective annual interest rate: Cyclone Rentals borrowed $15,550 from a bank for three years. If the quoted rate (APR) is 6.75 percent, and the compounding is daily, what is the effective annual interest rate (EAR)?
4. The Security Market Line: If the expected return on the market is 10 percent and the risk-free rate is 4 percent, what is the expected return for a stock with a beta equal to 1.5? What is the market risk premium?
Part: 2(300 words)
What are the two factors to be considered in time value of money? Please discuss the factors in detail.
Note – Make sure you write these answers by conducting some research and cite both textbook and external credible sources. Be typed, double spaced, using Times New Roman font (size 12), with one inch margins on all sides and heading; citations and references must follow APA format. Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date.
