Question

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?

Answer 1

Step-by-step explanation:

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