Answer to Question #267391 in Financial Math for Ayana Prica

Question

If the rate is at 1.25% effective, how long will R5 000 become R5 500?

Answer 1

effective interest rate:

$r=(1+i/n)^n-1$

where i is nominal rate,

n is number of compounding periods per year

we have:

$5500=5000(1+i/n)^{nm}$

where m is number of years

$(1+i/n)^n=r+1=1.0125$

then:

$5500=5000\cdot1.0125^m$

$m=ln1.1/ln1.0125=7.67$ years