Question
In: Finance
Suppose at time 0 you had $2500 in the bank and 21 years later you had...
- Suppose at time 0 you had $2500 in the bank and 21 years later you had $15650. Calculate the effective annual rate of return if the bank pays interest:
- Continuously
Solutions
Expert Solution
As the bank pays interest continuously, 1st we will calculate the required rate of return to convert $2500 to $15650 in 21 years.
For this we will use the RATE function of excel, and the function argument will be as below :-
Present Value (PV) = $2500 ( please put in value in minus in excel for calculation to show the outflow )
Future Value (FV) = $15650
Nper = 21 Years
So the rate of Interest is 9.13% compounded annually.
As there is no further information is given in the question regarding the compounding period per year, in this case 9.13% compounded Annually will also be the Effective Rate of Interest.
jeff jeffy answered 2 months agoRelated Solutions
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