You have just purchased a four-month, $630,000 negotiable CD, which will pay a 4.5 percent annual interest rate.

a. If the market rate on the CD rises to 5 percent, what is its current market value?

(Do not round intermediate calculations. Round your answer to 2 decimal places. (e. g., 32.16))

b. If the market rate on the CD falls to 4.25 percent, what is its current market value? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e. g., 32.16))

A. cv = $628998.51

B. cv = $638180.86

Explanation:

Fv = iv * (1 + r)^n

Where fv = final value

Iv = initial value. = 630,000

r = rate = 4.5%

n = time of maturity = 4/12 = 0.3333

So therefore:

Fv = 630000(1 +.045)^0.3333

Fv = $639310.75

a. If rate is reduced to 5%

Current market value = c.f.

Since rise or drop in rate would affect the new value of product if you are to sell

So:

639310.75 = cv( 1 + r )^0.3333

cv = 639310.75 / (1.05)^0.3333

cv = 628998.51

b. If rate reduces to 4.25%

Solving it the same way as (a)

639310.75 = cv* ( 1 + 0.0425 ) ^0.3333

cv = $638180.86

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