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Hi Mr,
I find some question at opentuition website, but some question i cannot to solve it, so need you to help. Please see below:
Question 1 : Two investment are available. Investment P offer interest of 5% per year compounded half-yearly for a period of 4 years. Investment Q offer one interest payment of 18% at the end of its 4 year life. What is the annual effective interest rate offered by each of the two investments?
Question 2:
Time , Output , Overhead , Cost Price index
3 year ago , 2000 , $8800 , 132,current year , 5000 , $31,000 , 164
using highlow method, what is variable cost /unit expressed in current year prices.
Thanks 🙂
1
P: Interest of 5% per year is 2.5% every half year.
If the effective annual rate is R, then (1 + R ) = 1.025^2 = 1.050624
So R = 0.0506 or 5.06%Q: If annual rate is R, then (1 + R)^4 = 1.18
So R = (fourth root of 1.18) – 1 = 0.0422 or 4.22%2
If you restate the cost three years ago in current year prices, then it becomes 8,800 x 164/132 = $10,933
It now becomes a normal high/low problem.
Low is 2000 units with cost of 10933
High is 5000 units with cost of 31000Hi Sir,
Thanks a lot.
But i still don’t understanding the question 1. why ^2 ? the question put 4 years.
1.025^2 = 1.050624please advise.
The question wants the effective rate per year. There are two x six months in a year which is why ^2.
(The four years is irrelevant for this question)
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