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 hours ago

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