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Hi could you please refer to question 19.23 in the exam kit and help me understand how the annual rate for inveatment wye is calculated since interest is compounded only once. It’s on page 81.
The interest is not compounded only once. It is compounded 4 times because the interest is 20% at the end of 4 years.
So if the interest is R per year, then 1.20 = (1+R)^4
So 1+R = fourth root of 1.20 = 1.0466
So R = 0.0466 (or 4.66%)(I assume that you have watched my free lectures on this. The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.)
I’ve watched the lectures yes and I understand the concept but I didn’t understand the question. I understand it now, thank you.
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