Problem
Part I: (Each Answer 125 words)
• Future value: Your bank pays 5 percent annual interest compounded semiannually on your savings account. You don't expect to add to the current balance of $2,700 over the next four years. How much money can you expect to have at the end of this period?
• Present value: You want to buy some bonds that will have a value of $1,000 at the end of seven years. The bonds pay 4.5 percent interest annually. How much should you pay for them today?
• Effective annual interest rate: Cyclone Rentals borrowed $15,550 from a bank for three years. If the quoted rate (APR) is 6.75 percent, and the compounding is daily, what is the effective annual interest rate (EAR)?
• The Security Market Line: If the expected return on the market is 10 percent and the risk-free rate is 4 percent, what is the expected return for a stock with a beta equal to 1.5? What is the market risk premium?
Part II: (300 words)
What are the two factors to be considered in time value of money? Discuss the factors in detail.
The response must include a reference list. Using Times New Roman 12 pnt font, double-space, one-inch margins, and APA style of writing and citations.