# Effective Rate of Interest

• November 24th 2009, 05:40 AM
Ife
Effective Rate of Interest
A fund earns interest at a rate of J4 = 8.04%. At the end of the quarter, just after interest is credited, a fee of 0.50% of the fund is withdrawn. If a single deposit of \$2,000 is made on the 1st January of a particular year, determine

i) Value of account on 1st january of the following year.

ii) Annual effective rate of interest earned by the fund??
• November 24th 2009, 10:13 AM
Jameson
Quote:

Originally Posted by Ife
A fund earns interest at a rate of J4 = 8.04%. At the end of the quarter, just after interest is credited, a fee of 0.50% of the fund is withdrawn. If a single deposit of \$2,000 is made on the 1st January of a particular year, determine

i) Value of account on 1st january of the following year.

ii) Annual effective rate of interest earned by the fund??

So each quarter you have something like $1.0804P-(1.0804P)(.005)$. The first term is just applying the interest. The second term is taking that term and finding .05% of it, then subtracting from the first term. This action would be repeated each quarter.
• November 24th 2009, 10:34 AM
Ife
thanks, so i guess there's no formula that can be applied to get the answer in one calculation, then?? i thought maybe there was a way to work it that i wasn't seeing.(Happy)