What is the effective annual rate of interest if $900.00900.00 grows to $1400.001400.00 in years compounded quarterly? round 4 decimal places as needed.
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Expert's answer
2017-02-28T11:56:05-0500
If $900.00 grows to $1400.00 in years compounded quarterly, then: 1400 = 900*(1 + i/4)^4, (1 + i/4)^4 = 14/9, 1 + i/4 = 1.1168, i = 0.4672 or 46.72%. Effective rate of interest can be calculated using formula: r = (1 + i/n)^n - 1, where i - nominal interest rate, n - number of compounding periods. r = (1 + 0.4672/4)^4 - 1 = 0.5556 or 55.56%.
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