BPP Black Friday sale!

40% discount on all BPP books specially for OpenTuition students!
Get it here >>

The annual effective interest rate

This topic has 1 reply, 2 voices, and was last updated 9 years ago by John Moffat.

Viewing 2 posts - 1 through 2 (of 2 total)

Author
Posts
January 30, 2015 at 2:02 pm #224399
Tran
Member
- Topics: 3
- Replies: 3
Dear Sir .
Can you tell me the way to answer this question
there are two investment are available
investment P offers interest of 5% per year compounded half yearly for the period of 4 years.
investment Q offers one interest payment of 18% at the end of its 4 years life.
what is the annual effective interest rate of two investment.
Thank u so much.
January 31, 2015 at 10:55 am #224476
John Moffat
Keymaster
- Topics: 57
- Replies: 54483
P is interest of 5/2 = 2.5% every half year.
So the annual effective rate is (1.025^2) – 1
For Q, if the annual effective rate is R, then after four years (1+R)^4 = 1.18
So R = (fourth root of 1.18) – 1
Author
Posts

Viewing 2 posts - 1 through 2 (of 2 total)

You must be logged in to reply to this topic.