- This topic has 3 replies, 2 voices, and was last updated 3 years ago by
.
Viewing 4 posts - 1 through 4 (of 4 total)
- Posts
Q12b.22 (BPP kit)
It says in answer that 20% return over a 4 year period must have an effective annual rate of less than 5% (20% ÷ 4 years) when the compounding effect is allowed for.
I am unable to understand this why the effective rate should be less than nominal rate. It is more that is why called effective.If the annual rate was 5% then the equivalent rate over 4 years would be (1 + 0.05)^4 – 1, which is more than 20%.
Viewing 4 posts - 1 through 4 (of 4 total)
- The topic ‘Effective rate’ is closed to new replies.