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Hi!
I wish to know how are the effective interest rates adjusted to inflation.
Thanks in advance
Hi again!
I have another problem with two June exam papers 2012 & 2013.
June 2012:
Q: An investor has the choice between 2 investments. Investment Exe offers interest of 4% per year compound semi-annually for a period of three years. Investment Wye offers one interest payment of 20% at the end of its four-year life.
What is the annual effective interest rate offered by the two investments?
Investment Exe Ivestment Wye
A. 4% 4.66%
B. 4% 5%
C. 4.04% 4.66%
D. 4.04% 5%Correct answer given was C. How should the calculation for “semi-annually for period of 3 years” be?
June 2013:
Q: A project has an initial outflow of $12000 followed by 6 equal annual cash inflows, commencing in 1 year’s time. The payback period is exactly 4 years. The cost of capital is 12% per year.
What is the project’s NPV (to the nearest $) ?
A. $333
B. -$2899
C.-$3778
D.-$5926Correct answer given was A with no clear explanation of solving this question. How do i solve this question??
Please help, as this topic is quite complicated for me to catch.
Thx.
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