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iPad 12:01 AM 53% edugen.wileyplus.com Everyday Low Price LA Colors Baked Eyeshadow, CE1018 - iKateHouse Shopping Cart ItsASteal Archives-Col.... 12 Days of Deals | New Sites-UGG-US-Site Amazon.com: Holiday... The Make it Pop Steal WileyPLUS MESSAGE MY INSTRUCTOR FULL SCREEN PRINTER VERSIONBACK NEXT Chapter 5, Algebra Aerobics 5.7, Question 03e Assume that the following describes the value, A, of an investment, Ao, over years. Identify the principal, nominal rate, and effective rate. A= 159e007 Round the answer to two decimal places. reff = Click if you would like to Show Work for this question: Open Show Work By accessing this Question Assistance, you will learn while you earn points based on the Point Potential Policy set by your instructor. Question Attempts: 0 of 2 used SAVE FOR LATER SUBMIT ANSWER SAVE FOR LATER SUBMIT ANSWER

Explanation / Answer

We are given that A = 159e0.07t where t is the number of years and A is the value of investment after t years.

Then the initial investment A0, is A when t = 0.  Thus A0 = 159e0 = 159.

Also A1 = value of investment after 1 year = 159e0.07 = 159(1.07250818) = 170.5288006. Therefore, the interest for 1 year is A1 - A0 =  170.5288006 - 159 = 11.5288006. Therefore the nominal rate of  interest = [( annual interest)/ (Initial investment)] * 100 % = (11.5288006/ 159)* 100 % = 7.250818 % = 7.25 % ( on rounding off to 2 decimal places).

For calculating the effective rate of interest, we need to know n, the the number of compounding periods per year. The formula for the effective rate of interest is reff = ( ! + i/n)n -1 where i is the nominal rate, and n the number of compounding periods per year . When the frequency of compounding is increased up to infinity the calculation will be: reff = ei -1. In the question, we have not been advised the value of n.

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