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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)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.)
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