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an investor has the choice between two investment . investment exe offers interest of 4% per year compounded semi annually for a period of 3 years. investment wye offers one interest payment of 20% at the end of its 4 year life . what is the annual effective interest rate offered for the two investments ?
sir please answer me this question .
Thank you !!!Exe gives 2% (4%/2) every six months.
If you invested 100, then after six months it would be 102. After another 6 months it would be 102 x 1.02 = 1.0404. This is the same as 4.04% per year.
If Wye was giving interest of R every year, then 100 invested for 4 years would grow to 100 x (1 + R)^4.
So 100 x (1+R)^4 must equal 100 x 1.20
So 1+ r = the fourth root of 1.20
sir how you calculated wye interest i didnt get it . can you try another method ?
There is no other method!
To add on 20% at the end of 4 years you multiply by 1.20
To add on interest of r every year you multiply by (1+r)^4
(Have you watched the free lectures on interest?)
sir,but from where you got 1.20 ???
yes offcourse i watched all the lecturessir,
1+R = (1+.05)^4 can we do in like this method something like this ???sir in the answer back of text given like :
1.20^0.25-1= 0.0466 or 4.66%
sir forget about all the above question ii asked . sir just say me how they got
0.25 ?I wrote that if r is the annual rate, then (1+r)^4 = 1.20
Therefore (1+r) = fourth root of 1.20
From your school maths, you should be aware that another way of writing “fourth root” of 1.20 is to write 1.20^(1/4) or 1.20^0.25
sir , please help me wether what iam saying is correct or not ?
1+R = (1+r)^n
this is the formula . as here is r=20% = 0.20 in this i have no confusion . but n =4 or 0.25 sir here is only my confusion . it should be 4 ryt as it is for 4 yrs ?
please try to clear my confusion .
Thank you !!!
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