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

Lia Blevins

Business

9 August, 17:09

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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Carla · 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