Consider the cash flow transactions depicted in the accompanying cash flow diagr
ID: 2492744 • Letter: C
Question
Consider the cash flow transactions depicted in the accompanying cash flow diagram with the changing interest rates specified. What is the equivalent present worth? (In other words, how much do you have to deposit now so that you can withdraw $400 at the end of year 1, $400 at the end of year 2, $700 at the end of year 3, and $700 at the end of year 4?) The equivalent present worth is $ 1778. (Round to the nearest dollar.) What is the single, effective annual interest rate over four years? The single, effective annual interest rate over four years is %. (Round to one decimal place.)Explanation / Answer
Assuming first part is correct
b)the single effective annual interest is
=1778*(1+6%/12)^12*(1+9%/12)^24*(1+6%/12)^12
=$2397.72
let "x%" be EAR then
[(2397.72/1778)^(1/3)]-1
=10.48%