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i worked this question on the mock exam!
Investment p offers a interest of 5% per year compounded half year for perioof 4years.
investment q offers one interest payment of 18% at the end of the yearlife. what is the annual effective rate for both?p=(1+.05)^6
1+r= 1.3400
=34i really dont understand how to calculate this quuestion to arrive with these answer.
correct answer= p= 5.06, q=4.22
i listen to your lecture, but am not getting it. plz explainFor investment P, the interest is 2.5% every six months.
So the annual effective rate is (1.025^2) – 1 = 0.0506 or 5.06%
(it is to the power 2 because there are 2 six-months in a year)For investment Q, if R is the annual interest, then (1+R)^4 = 1.18
So R = (4th root of 1.18) – 1 = 0.0422 or 4.22%
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