Will a deposit made into an account paying compound interest (assuming compounding occurs once per year) yield a higher future value after one period than an equal-sized deposit in an account paying simple interest? What about future values for investments held longer than one period?
Answer to relevant QuestionsUnder what condition would the stated annual rate equal the effective annual rate (EAR) for a given deposit? How do these rates relate to the annual percentage rate (APR) and annual percentage yield (APY)? How would (a) a decrease in the interest rate or (b) an increase in the holding period of a deposit affect its future value? Why? What is perpetuity, and how is its present value conveniently calculated? How do you find the present value of a growing perpetuity? Answer parts a–c for each of the following cases. Answer parts a–c for each of the following cases. a. Calculate the future value at the end of the specified deposit period. b. Determine the effective annual rate ...Explain who benefits from the option to convert a bond into shares of common stock, and who benefits from the option to call a bond.
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