Assume that a $100 at February 1, 2014 will worth $110 on January 31, 2015 and w

Question

Assume that a $100 at February 1, 2014 will worth $110 on January 31, 2015 and was $ 90 on January 31, 2013:
A- compute the interest rate for past and next year. Are they the same?
B- what is the annual interest rate for the two years period? Assume that a $100 at February 1, 2014 will worth $110 on January 31, 2015 and was $ 90 on January 31, 2013:
A- compute the interest rate for past and next year. Are they the same?
B- what is the annual interest rate for the two years period?
A- compute the interest rate for past and next year. Are they the same?
B- what is the annual interest rate for the two years period?

Explanation / Answer

A.

PRINCIPAL IN 2013: $90

PRINCIPAL IN 2014: $100.

INTEREST FOR THE PAST YEAR = $10.

INTEREST RATE = $10/$90=.1111 OR 11.11%

PRINCIPAL AMOUNT IN 2014: $100

PRINCIPAL IN 2015: $110

INTEREST EARNED = $10

RATE OF INTEREST = $10/$100 =.10 OR 10%.

B.

INTEREST FOR BOTH THE PERIODS COMBINED IS CALCULATED AS FOLOWS:

90(1+i)2 =110

THUS (1+i)2 =110/90

(1+i)2 =1.2222

1+i = 1.10553

i=.10553

THUS INTEREST RATE FOR BOTH THE PERIODS ARE 10.553%.

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