Question

Problem #2: Draw the cash flow diagram and find the uniform annual amount over 4 years that would be generated from an investment. of $1000 now at an effective interest rate of 13 quarterly. In oth effectîve annual interest rate of (1+0.01)1 over 4 years. rds, use an

Answer 1

ANSWER:

The cash flow diagram couldn't be uploaded and so i have drawn the cash flow table.

year	0	1	2	3	4
initial investment	1,000
uniform annual amount		a	a	a	a

effective interest rate = (1 + nominal rate) ^ n - 1

n = 4 years

nominal rate = 1% per quarter

eir = (1 + 1%) ^ 4 - 1 = (1.01) ^ 4 - 1 = 1.040604 - 1 = 0.040604 or 4.06%

Uniform annual amount = investment(a/p,i,n)

i = 4.06% and n = 4 years

Uniform annual amount = 1,000(a/p,4.06%,4)

Uniform annual amount = 1,000 * 0.2759

Uniform annual amount = 275.9

so the uniform annual amount is $275.9