Overview of Finance - Assignment

Added on -2020-02-19

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Running Head: FINANCEFinanceName of the Student:Name of the University:Authors Note:
FINANCE2Table of ContentsAnswer to question 1:......................................................................................................................3Answer to question 2:......................................................................................................................8Answer to question 3:......................................................................................................................8References:....................................................................................................................................13
FINANCE3Answer to question 1:Calculation of equivalent annual rate of interest earnings for the available projects:Project A:Annual interest earnings rate from project A is to be calculated using the following formula:Assuming the principal amount of investment of $100.00. The Interest earnings over the period of 10 years @ 11.56% per annum compounded annually will be calculated using the following formula:Year 1 = 100 X 111.56% = 111.56 – 100.00 = 11.56Accordingly, the total interest earnings from the project A shall be as following: Year 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00 100.00 111.56 124.46 138.84 154.89 172.80 192.78 215.06 239.92 267.66 298.60 Total interest earnings over the 10 years period = 298.60 – 100.00 = 198.60 Average interest earnings per year = 198.60 / 10 years = 19.86 Equivalent Annualized rate of interest earnings= 19.86 X 100 / 100 = 19.86% (Anderson et al. 2015)Project B:The interest earning rate for the project is 12% per annum to be compounded monthly. Using the following formula let us calculate the annualized rate of interest earnings for the project.
FINANCE4Assuming the principal at $100.00, the annualized interest earning rate would be calculated usingthe following formula:Interest earning per month will be:(100.00 X 12%) X 1/12 = 1.00 Accordingly, the annualized interest earning rate would be:Month 1.0000 2.0000 3.0000 4.0000 5.0000 6.0000 100.00 1.0000 1.0100 1.0201 1.0303 1.0406 1.0510 Month 7.0000 8.0000 9.0000 10.0000 11.000012.00001.0615 1.0721 1.0829 1.0937 1.1046 1.1157 Annualized interest earnings rate would be: (1+1.01+1.0201+1.0303+1.0406+1.0510+1.0615+1.0721+1.0829+1.0937+1.1046+1.1157)) = 12.68% per annum Assuming the principal amount of investment of $100.00. The Interest earnings over the period of 10 years @ 12.68% per annum compounded annually will be calculated using the following formula:Year 1 = 100 X 112.68% = 112.68 – 100.00 = 12.68Accordingly, the total interest earnings from the project B shall be as following: Year

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