A man makes a $1000 investment every year on December 31. Interest is 10% per ye

Question

A man makes a $1000 investment every year on December 31. Interest is 10% per year, but compounded semi-annually (every 6 months). He makes 10 investments in all.
a. Find the effective annual interest rate
b. Use your result in (a) to find the value of the investment immediately after the 10th investment A man makes a $1000 investment every year on December 31. Interest is 10% per year, but compounded semi-annually (every 6 months). He makes 10 investments in all.
a. Find the effective annual interest rate
b. Use your result in (a) to find the value of the investment immediately after the 10th investment A man makes a $1000 investment every year on December 31. Interest is 10% per year, but compounded semi-annually (every 6 months). He makes 10 investments in all.
a. Find the effective annual interest rate
b. Use your result in (a) to find the value of the investment immediately after the 10th investment

Explanation / Answer

4 Number of compoundings in a year = 2 Effective Annual Interest Rate = (1 + Nominal Rate / n)^n - 1 =(1+0.1/2)^2-1 =(1+0.05)^2-1 10.25% b. Value of investment = Annuity*[1+r)^n-1]/r =1000*[(1+0.1025)^10-1]/0.1025 16129.73

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.