bpp question

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December 30, 2016 at 8:38 am #364665
ryan32
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An Investment WYE offers one interest payment of 20% at the end of its 4 year cycle.
What is the annual effective interest rate offered by the investment

if i use the effective annual interest formula r=(1+i/n)-1
the answer came out to be 5%
while the bpp answer shows 4.66%

i couldn’t understand there solution.can u plz explain it how to solve this.
December 31, 2016 at 5:30 pm #364723
John Moffat
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You are using a wrong formula!!

(1+r)^4 = 1.20

So 1 + r = 1.0466

r = 0.0466

Have you watched my free lectures on interest?
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