Your firm invested $2,500,000 in 190-day commercial paper today. At the end of t

Question

Your firm invested $2,500,000 in 190-day commercial paper today. At the end of the investment period (in 190 days) the firm will receive $2,592,400.

a. What is the 190-day holding period rate of return on the investment? (Round your answer to 2 decimal places.)

HPR            %

b. How many 190-day periods are there in one year? (Use a 365-day year. Round your answer to 4 decimal places.)

Number of periods            %

c. What is the annual percentage rate APR earned on the investment? (Round your answer to 2 decimal places.)

APR            %

d. What is the effective annual rate (EAR)? (Round your answer to 2 decimal places.)

EAR            %

Explanation / Answer

a Holding period rate of return 3.70% =(2592400-2500000)/2500000 b Number of periods 52.0548% =190/365 c APR 7.10% =((2592400-2500000)/2500000)*365/190 d EAR 7.22% =(2592400/2500000)^(365/190)-1

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