Investment P offers interest of 5% per year compounded half yearly for a period of 4 years.
Investment Q offers one interest payment of 18% at the end of its 4 year life.
What is the annual effective rate offered by each of the two invsts?
The solution to invst P is understood by me (5/2=2.5%=.025#(1+.025)^2-1=5.06%
but the Invst Q don't get it.
Could you help me understand this ?
Ask the Tutor ACCA MA
effective Interest rates
9y ago#1For Q, if the annual interest rate is R, then the total after 4 years = (1+R)^4 = 1.18
So R = (fourth root of 1.18 ) - 1
Thank you.
9y ago#3You are welcome :-)
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