ACCA F2 Mock Exam

The questions appear in a random order, so you will have to help me by telling me the first line of the question.

Two investments are available. investment P offers 5% per year compounded half-yearly for 4 years. investment Q offers one interest payment of 18% at the end of its 4 year life. What is the annual effective interest rate offered by each of two investments?

P: 5% per year is 2.5% every half year. So if the annual effective rate is (1.025)^2 - 1 = 0.050625 or 5.0625% per year Q: If R is the annual rate, then (1+R)^4 = 1.18. So R = (fourth root of 1.18) - 1 = 1.0422 (or 4.22% per year)

Thank you sir.

You are welcome :-)

Arty: This is ridiculous. You have posted the same question 4 times! Doing that will not get a reply sooner - we promise to answer within 48 hours, but it is almost always within 24 hours. If you do it again you will not get any reply at all!!!! I have answered your question elsewhere. (And please open a new thread when it is a new topic - this has nothing to do with effective interest rates.)