value: 1.00 points You have just purchased a three-month, $500,000 negotiable CD
ID: 2649708 • Letter: V
Question
value: 1.00 points You have just purchased a three-month, $500,000 negotiable CD. which will pay a 5.5 percent annual interest rate. a. If the market rate on the CD rises to 6 percent, what is its current market value? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16)) Current market value $ b. If the market rate on the CD falls to 5.25 percent. what is its current market value? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))Explanation / Answer
a)
Negotiable CD = 500000
Interest = 500000*5.5%*3/12 = 6875
Total Negotiable CD including interest = 506875
Market rate changes to = 6% p.a
3 month Market rate = 6%*3/12 = 1.5%
Current Market Value = 506875/(1+1.5%)
Current Market Value = $ 499384.24
b)
Negotiable CD = 500000
Interest = 500000*5.5%*3/12 = 6875
Total Negotiable CD including interest = 506875
Market rate changes to = 5.25% p.a
3 month Market rate = 5.25%*3/12 = 1.3125%
Current Market Value = 506875/(1+1.3125%)
Current Market Value = $ 500308.45
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