The question 20: If an investment of $4,000 will grow to $6,250 in four years with monthly compounding, the effective annual interest rate will be closet to: a. 11.21% b. 12.28% c. 12.99% d. 15.75% The answer is c, but I just couldn’t get the answer. My calculation will always get me answer A: N=48, PV=-4,000, FV=6250, PMT=0 => I/Y=0.9341 EAY=0.9341*12=11.21 anyone can help? thanks

EAY = ((1 + Periodic rate ) ^t) -1 FV = 6520 PV -4000 N-48 Solve for I: 1.023% EAY = (1 + .0123)^12 -1 = .1299 12.99%

The quetion states 6250 though

It should be 6520 else answer would be close to 11.8%

i believe its supposed to be 6520 on the exam

yeah. 6250 gives you 11.8%

Monthly compounding is also a distractor. Because it’s an EAR all you need to do it take the fourth root: so (6250/4000)^.25 = 1.1180 (or 11.80% interest) and (6520/4000)^.25 = 1.1299 (or 12.99% interest)