ACCT-311 Lecture Notes - Lecture 9: Effective Interest Rate, Efficient-Market Hypothesis, Real Options Valuation
1 Apr 2016
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Effective (or equivalent) annual rate (ear or eff) the rate that, under annual compounding, would have pro- duced the same future value at the end of 1 year as was produced by more frequent compounding, say quar- terly. If the compounding occurs annually, the effective annual rate and the nominal rate are the same. If com- pounding occurs more frequently, the effective annual rate is greater than the nominal rate 10. The efficient portfolio is that which provides the lowest degree of risk for any expected return 20 embedded options options that are a part of another project. The npvs of the projects are converted into an annuity payment with a life equal to the life of the project. The project with the higher annuity should be selected 31 euro the currency used by the nations in the european monetary union 63. Eurobond any bond sold in some country other than the one in whose currency the bond is denominated.
