Question

You deposit $1,000 for 21 months at Quarterly compounding and its future amount is $1,188.69. What (nominal, named, stated, quoted) rate did you receive? round to 5 decimal places, leave in decimal format.

Answer 1

Future Value:

Future Value is Value of current asset at future date grown at given int rate or growth rate.

FV = PV (1+r)^n
Where r is Int rate per period
n - No. of periods

Particulars	Amount
Present Value	$       1,000.00
Future Value	$       1,188.69
Periods	7

Future Value = Cash Flow * ( 1 + r )^n
$ 1188.69 = $ 1000 ( 1 + r ) ^ 7
( 1 + r ) ^ 7 = $1188.69 / $1000
( 1 + r ) ^ 7 = 1.1887
( 1 + r ) = 1.1887 ^ ( 1 / 7 )
( 1 + r ) = 1.025
r = 1.025 - 1
r = 0.025 i.e 2.5 %

Nominal rate = Int Rate per quarter * 4

= 2.5% * 4

= 10% I.e 0.10000