The formula for EAR is
EAR = (1 + r / n )^n - 1
http://www.tvmschools.com/formula/effect...
If EAR = 9% the nominal rate r is equal to
r = 4 x ((1+9%)^1/4 -1)
r = 8.7113%
i = 8.7113% / 4
i = 2.1778% quarterly
The present value of an annuity is given by the formula
PV = Pmt x (1 - 1 / (1 + i)^n) / i
http://www.tvmschools.com/formula/presen...
PV = 2000 x (1 - 1 / (1 + 2.1778%)^16) / 2.1778%
PV = 26,776.82 = original sum
you have an investment with 16 quarterly cash flows of $2000. the first payment is 3 months from today. if the EAR is 9% what is the present value of this investment?
