# Quant question

If an investment of \$4000 will grow to \$6520 in four years with monthly compounding, the effective annual interest rate will be closest to? 1. 11.21% 2. 12.28% 3. 12.99% 4. 15.75 Please post your Answers, I’ll post the solution later.

A

anupamjain008 Wrote: ------------------------------------------------------- > If an investment of \$4000 will grow to \$6520 in > four years with monthly compounding, the effective > annual interest rate will be closest to? > 1. 11.21% > 2. 12.28% > 3. 12.99% > 4. 15.75 > > Please post your Answers, I’ll post the solution > later. Dont have my BA II PP with me at work, but here’s what I think you need to do PV = -4000 FV = 6520 N= 48 CPT -> I/Y

C

I think you computed nominal though, don’t you have to factor in the monthly compounding to get the EAY? Or was that already done with the N=48?

for me it was Monthly interest = (6520/4000) to the power 1/48. Eff interest = Monthly interest to the power 12

C

Okay, I don’t know what i was thinking, I got 12.99%, whey I wrote A, I don’t know. I agree, C.

12.99%

Hank0414x Wrote: ------------------------------------------------------- > anupamjain008 Wrote: > -------------------------------------------------- > ----- > > If an investment of \$4000 will grow to \$6520 in > > four years with monthly compounding, the > effective > > annual interest rate will be closest to? > > 1. 11.21% > > 2. 12.28% > > 3. 12.99% > > 4. 15.75 > > > > Please post your Answers, I’ll post the > solution > > later. > > > Dont have my BA II PP with me at work, but here’s > what I think you need to do > PV = -4000 > FV = 6520 > N= 48* > CPT -> I/Y *meant to be 4, typed 48 by mistake

Hank0414x Wrote: ------------------------------------------------------- > Hank0414x Wrote: > -------------------------------------------------- > ----- > > anupamjain008 Wrote: > > > -------------------------------------------------- > > > ----- > > > If an investment of \$4000 will grow to \$6520 > in > > > four years with monthly compounding, the > > effective > > > annual interest rate will be closest to? > > > 1. 11.21% > > > 2. 12.28% > > > 3. 12.99% > > > 4. 15.75 > > > > > > Please post your Answers, I’ll post the > > solution > > > later. > > > > > > Dont have my BA II PP with me at work, but > here’s > > what I think you need to do > > PV = -4000 > > FV = 6520 > > N= 48* > > CPT -> I/Y > > > *meant to be 4, typed 48 by mistake 48 is right. all you have to do once you get I/Y is then (1 + 1/y)^12 - 1

Or use the iconv key

12.99 is what i get c

amberpower Wrote: ------------------------------------------------------- > Or use the iconv key where is htis key?

It is the 2 key on the BAII (2nd, 2). Plug in the nom yld, times of year to be compounded and it gives you EAY. Only time you can’t use it is for continuous compound but that formula is easy to remember if you know anything about shampoo. P=e^rt LOL

when you usae the BA to calculate the monthly interest rate using n=48, and then multiply that times twelve, is that not considered to be the effective annual rate? if not, what is the other term (synonym) that is used for when you use the calculator and input n=48 and then multiply x 12??? i think i am lost on this one… good question, hope they dont ask it on the exam

after doing the original calculation I get 1.0231% then when I go to Iconv, i put nominal rate = 1.0231 c/y = 12 cpt eff = 1.0279 can anyone explain how you get 12.99 after you have 1.0231% thanks

Multiply 1.231 x 12 = 12.27 = nominal c/y = 12 cpt eff. = 12.99 I did this the first time, it’s the long way.

ah! wow. that ICONV feature is pretty sweet.

You guys are all absolutely right… 12.99% it is. Cheers