Offered to buy a financial security that guarantees to pay

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Reference no: EM13890201

1 Elizabeth is offered to buy a financial security that guarantees to pay her $10 every 2 years forever. The annual interest rate is 8%.

(a) How much would she pay for it today if the first payment will be received today?

(b) How much would she pay for it today if the first payment will be received in 1 year?

2. Anna, Barbara and Clara have never been to Europe. So the three friends decided that 2 years from today they will take a graduation trip to Europe for the entire summer (3 months). For this trip, they decided to start saving money by depositing altogether $200 at the end of each month in their joint savings account that pays a special rate of interest of 12% per year (or 1% monthly). They will spend the entire saved amount during their summer trip.

How much money (fixed amount) will the three friends be able to withdraw from their joint savings account at the beginning of each of the three months of their European travel?

Reference no: EM13890201

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