Answer to Question #301358 in Management for Acuté

Question

1. Using a practical example, explain what is meant by an effective annual interest rate

2.Z Ltd bond has a 10 percent coupon rate and a K1000 face value. Interest is paid semiannually,and the bond has 20 years to maturity. If investors require a 12 percent yield, what is the value of the bond? Also determine the effective annual yield on this bond?

3. Nkandu has a K10,000 to invest in a stock portfolio on LuSE. He intends to invest in stock X with an expected return of 14 percent and stock Y with an expected return of 10.5 percent. if his goal I to create a portfolio that will generate a return of 12.4 percent, how much money should he invest in stock X and stock Y?

Answer 1

1) An effective annual interest rate is the return on an investment or the rate owed in interest on a loan, when compounding is taken into account.

2)