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 i do not have my financial calculator with me but this how it goes: N = 4*12 = 48; PV 4000; FV = -6520; PMT = 0; CPT->I/Y Effective annual interest = (1 + I/Y)^12 - 1
jdoshi 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 > > i do not have my financial calculator with me but > this how it goes: > > N = 4*12 = 48; PV 4000; FV = -6520; PMT = 0; > CPT->I/Y > > Effective annual interest = (1 + I/Y)^12 - 1 CPT I/Y = 1.0231 so would it be (1+ 1.0231/12) ^ 12 -1??? or (1+ .010231/12)^ 12-1??? i cant get either one to work, please elaborate, am i just calculating this wrong??
Guys, don’t even consider monthly compounding here although it is put forward in the question. Effective annual rate already include the monthly compounding effect. Simply: FV=6520, PV=-4000, N=4 -->CPT I/Y = 12.99
Right hope, I went around the block and back…and put it in and took it back out. Thanks!
That is the simple and easy way to calculate.
hopetobeat Wrote: ------------------------------------------------------- > Guys, don’t even consider monthly compounding here > although it is put forward in the question. > Effective annual rate already include the monthly > compounding effect. > > Simply: FV=6520, PV=-4000, N=4 -->CPT I/Y = 12.99 WOW!! Nice catch. I am so stupid.,
trying to delete my post- failed.
plug this in your calcl and see what you get FV = 10k PMT = 500 n = 30 i = 5%
Hopetobeat: If it was compunded quarterly, would your solution still work?
yes it would.
Got C doing the CAGR formula (6520/4000) ^ .25 - 1 = 12.99% IS THIS IT???/?
Yep.
Dreary Wrote: ------------------------------------------------------- > Yep. THANKS!