Dear Sir .
Can you tell me the way to answer this question
there are two investment are available
investment P offers interest of 5% per year compounded half yearly for the period of 4 years.
investment Q offers one interest payment of 18% at the end of its 4 years life.
what is the annual effective interest rate of two investment.
Thank u so much.
Ask the Tutor ACCA MA
The annual effective interest rate
11y ago#1P is interest of 5/2 = 2.5% every half year.
So the annual effective rate is (1.025^2) - 1
For Q, if the annual effective rate is R, then after four years (1+R)^4 = 1.18
So R = (fourth root of 1.18) - 1
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