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invt appraisal qstn (mcq)

This topic has 3 replies, 2 voices, and was last updated 3 years ago by John Moffat.

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September 4, 2021 at 8:52 am #634234
cadhakan
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Carter’s treasury department is now considering how to best invest a cash surplus. Investment Exe offers interest of 4% per year, compounded semi-annually, for a period of three years. Investment Wye offers one interest payment of 20% at the end of its four-year life.
Which of the two investments gives the higher annual effective interest rate (work to 2 decimal places)?
Select one:
Investment Wye
Investment Exe
sir can you please explain me how to solve this qstn.
what i did is 4% =(1+ 4/96^3)-1 but i didnt get answer .can you please help me out.
September 4, 2021 at 11:52 am #634269
John Moffat
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You can find the solution on one of my previous replies:
https://opentuition.com/topic/annual-effective-interest-rate-2/
September 4, 2021 at 4:02 pm #634314
cadhakan
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sir i didnt get it can you plz explain more in detail.
why u did 4*6/12? for exe
and i didnt undertsand for wye too can you plz explain.
September 4, 2021 at 4:06 pm #634316
John Moffat
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- Topics: 57
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Semi annually means twice a year, which is every six months. If it is 4% a year then is 6/12 x 4% every half year.
As for the rest, I really cannot add to what is in the post that I linked to. The reasoning is all explained in my free lectures on interest.
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