ou have just purchased a four-month, $630,000 negotiable CD, which will pay a 4.5 percent annual interest rate. a. If the market rate on the CD rises to 5 percent, what is its current market value? b. If the market rate on the CD falls to 4.25 percent, what is its current market value?

Question

Business

Ibrahim Anthony

28 December, 23:05

ou have just purchased a four-month, $630,000 negotiable CD, which will pay a 4.5 percent annual interest rate. a. If the market rate on the CD rises to 5 percent, what is its current market value? b. If the market rate on the CD falls to 4.25 percent, what is its current market value?

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Jadiel Payne · Answer 1

first will need to calculate the Fv future value of this CD

Fv = Pv (1 + R) ^n n = 4 / 12 = 0.333333, r, rate = 4.5/100 = 0.045

Fv = $ 630000 (1 + 0.045) ^0.33333 = $ 639311.69

a) the current value at 5 % Pv = Fv / (1+r) ⁿ

Pv = $ 639311.69 / (1.05) ^0.3333 = $ 628998.41

b) the current price at 4.25% = $ 639311.69 / (1.0425) ^0.3333 = $ 630503.20