Question

1a) Money is invested at 13.73% p.a. compounded monthly for 48 months.

What is the numerical value of i?

b) What principal value will grow to $2057 if invested for 22 months at 10.10% p.a. compounded monthly? State your answer in dollars ($) with two decimals.

Answer 1

(1a).

Given the interest rate p.a is 13.73%.

Numerical value of i is the effective interest rate

Hence formula to calculate effective interest rate is (1+i/12)^12-1

Hence required interest rate is (1+13.73/(100*12))^12-1=14.627%

1(b) .

Given

principal value p=2057

n=no.of months=22

Interest rate I=10.10%

It is compounded monthly.

Hence the future value= p(1+i/12)^n

=2057(1+10.10/(12*100))^22

=2473.52