One Payment Stream Is Being Compared to Another

question 176

Multiple Choice

One payment stream is being compared to another. The first option is for $500 semi-annual payments over 5 years at an interest rate of 6% compounded semi-annually. The second option is for $250 quarterly payments over 5 years, with interest compounded quarterly. Determine the nominal rate of interest to be offered on the second option for both options to have equal future values.

• A) 4.95%
• B) 5.25%
• C) 5.65%
• D) 6.05%
• E) 6.85%

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Definitions:

Menstrual Period

The monthly shedding of the uterine lining in people with a uterus, marked by bleeding through the vagina.

Postcoital Contraception

Birth control methods used after sexual intercourse to prevent pregnancy, often referred to as the "morning-after" pill.

Norplant

A form of contraceptive implant that releases hormones to prevent pregnancy over an extended period.

Abortion

The medical or surgical termination of a pregnancy before the fetus can independently survive.