Finance question

Bingo. 7.1225% to be exact

No, you are definitely wrong. It doesn't say 7% semi-annually. It says 7% compounded semi-annually. Very different.

0.07 compounded semi annually means that for every dollar invested you get 1*(1+0.07) at the end of the first semester and 1*(1+0.07)^2 at the end of the second semester, so the equivalent annual rate should be 1*(1+0.07)^2-1 which is the equivalent rate of return on annual basis. Care to explain your reasoning?

Just read his question again. It says "7% pa" (per annum). That means the 7% is the rate for the entire year. Compounding means that it is subdivided.

Just look up the n=2 example on here, can probably explain it better than me:

investopedia.com/terms/c/compounding.asp

missed the pa, thanks user

If you had a mortgage that was at a 4% interest rate and compounded monthly, you wouldn't apply the 4% every month. You divide it by the number of periods(12), so the monthly interest would be calculated as 4%/12 = 0.333%. Semi-monthly just means 2 periods instead of 12.

Yeah I missed it at first too. All good.

All bullshit aside, buy one of these:

>amazon.com/Texas-Instruments-Plus-Financial-Calculator/dp/B00000JZKB

It has TVM (time value of money) functions to solve for present value, payments, interest, etc. and helped me through all of my finance and accounting course work during undergrad.

Good purchase, although Excel has all the TVM functions too, and chances are you already have that.

came up with this. npv is 0 and that 5000 is to neat to be bad. OP post solution

What if "today" was 12/31? :D

Again, very shitty question.

all finance exercises look like that man, I truly hate them because they fucking lack data and I always get shit wrong in them but I get shit right in more pro fucking shit like beta estimation it's very frustrating

My attempt.

I think the exercise implies these annuities have no maturity ie they provide total annual payment based on rate forever

I dunno.

You're not compounding your interest, though.

generally annuities are contracts you can't compound on because you can't purchase more annuity, you just receive payment. compound interest in this case has to be taken into account to find effective rate and discount factor, still OP is a faggot and has to post solution

>generally annuities are contracts you can't compound
>interest rate of 7% pa compounded semi annually
Obviously I'm misunderstanding the question.

that's because textbook exercises suck. If OP didn't say they were annuities I would have reasoned like you. Still we don't know which kind of annuities

I think you're confusing this with a perpetual annuity. A normal annuity has an end and the formulas between the two are different.

I agree with in that you should apply the interest to the current balance at that time(including prior interest), not only on the original principal. If you only apply it to the original principal that would be considered simple interest, not compound.

>If OP didn't say they were annuities I would have reasoned like you
Problem being he's come onto an anime picture sharing site to ask a finance question, so his 'knowing that this is an annuity' is hardly a reliable statement. I took the question at face value.

I know but OP specified they are annuities which require the same payment over time, he also didn't specify maturity so they should be perpetual annuities

But the question says 5 years, so I would safely assume that's the maturity. I came up with FV of $6175.41

Also you say "same payment over time." Remember it said they're investing that. I'm assuming that's what you meant. It's not money coming out of the annuity.

Once again, it's a vague question and can be interpreted in various ways.

"Today's dollar" is not a technical term

Present.

Following your reasoning and assuming investment ends during year 5 I came up with this which is similar to but I furthered with the present value discounting. Still track is too vague

OP here, I don't have a solution, we had a surprise quiz. Also if it helps it is an ordinary annuity since equal cash flows, equally spaced and finite years

You only show 4 years of $1000 contributions in your sheet. My last year had the $1000 plus the interest when it was all said and done. That's where I got $6175.41.

I think my number is off, but you should have at least had $5000 going in, you only have $4000.

Here's what I had. The last column assumes value after interest at the end of the 5th year.

I meant that to be a sub-screenshot, but oh well haha

1000 is invested at the end of every year and investment ends in year 5 so there's no sense in investing and immediately getting back 1000 dollars at the end of year 5. Don't know what to get out of the track here

Yeah that's what I mean. So if you contributed $1k at the end, then you should have come up with $5764.81 for FV even though the last cash flow beared no interest.

Once again, shitty question. If you had this as a pop quiz I'd call out your prof.

actually you're accounting the interest of a sixth year, interest should be gained only in 4 years out of 5 in this case because in the first year nothing is invested. only at the end of it investment starts

Take a look at this from UMASS:
people.umass.edu/som640/ps4.pdf

Question 2.

Right, read this:

man I keep discounting annuities at coupon rate and guess what I come up with 0 as NPV, so there's something off in the track

true. ill go to sleep, keep kickin user

The original question is what "today's dollars" means. May be a trick question. Considering you wouldn't invest until the end of the year, and assuming that today is not the end of the year(12/31), the answer would be $0.

Peace. This may have been the most fun thread on here in a while. Good shit.

OP, show Jenni this thread if you got it wrong

How'd I do Veeky Forums?

I'll check through the thread.

i'm glad financial companies hire engineers and not finance majors to do their quant analysis. you motherfuckers suck at math.

Would you have an unlicensed pre-med student put a stint in your heart? In 10 years that pre-med student will be qualified to be your heart surgeon.

At least they're trying and they're not actually at a firm yet you cunt.

>practicing annuity payments on Veeky Forums hurts people