CalPolySLO

April 18th 2008, 05:17 PM

Greetings.

This is my first time posting on the forum, and I would greatly appreciate some help with a problem I am working on right now. I am a Financial Management student currently enrolled at California Polytechnic State University, San Luis Obispo. My question pertains to my Fixed Income Securities course.

Question: What is the value of an investment that pays $6700 every other year forever, if the first payment occurs 4 years from today and the discount rate it is 13% compounded daily?

First I found the EAR

(1+.13/365)^365 - 1 = .138802 or 13.8802%

Then, to account for the payments being received every other year I did this:

r = (1 + .138802)^2 - 1

r = .29687 or 29.687%

Then I solved for PV immediate (PVi)

PVi = c/r

PVi= 6700 / .29687

PVi = $22,568.80

Then I discounted PVi back 4 years to account for the deferred payment

PV = (1/1+EAR)^n * PVi

PV = (1/1.138802)^4 * (22,568.80)

PV = $13,418.86

I would really appreciate it if somebody could let me know if I did this right or not. And if I did it wrong, what should I do to get it right?

Thank you

This is my first time posting on the forum, and I would greatly appreciate some help with a problem I am working on right now. I am a Financial Management student currently enrolled at California Polytechnic State University, San Luis Obispo. My question pertains to my Fixed Income Securities course.

Question: What is the value of an investment that pays $6700 every other year forever, if the first payment occurs 4 years from today and the discount rate it is 13% compounded daily?

First I found the EAR

(1+.13/365)^365 - 1 = .138802 or 13.8802%

Then, to account for the payments being received every other year I did this:

r = (1 + .138802)^2 - 1

r = .29687 or 29.687%

Then I solved for PV immediate (PVi)

PVi = c/r

PVi= 6700 / .29687

PVi = $22,568.80

Then I discounted PVi back 4 years to account for the deferred payment

PV = (1/1+EAR)^n * PVi

PV = (1/1.138802)^4 * (22,568.80)

PV = $13,418.86

I would really appreciate it if somebody could let me know if I did this right or not. And if I did it wrong, what should I do to get it right?

Thank you