Assuming that interest is compounded annually, what interest rate

would give the same total return after 6 years as Scheme 1?

how would i work this out, would appreciate any help!,

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- Aug 11th 2012, 07:39 AMyoshimuruinterest question, please help!
Assuming that interest is compounded annually, what interest rate

would give the same total return after 6 years as Scheme 1?

how would i work this out, would appreciate any help!, - Aug 11th 2012, 11:43 AMSpringFan25Re: interest question, please help!
post the entire question please

- Aug 11th 2012, 12:16 PMyoshimuruRe: interest question, please help!
3. You have £5000 to invest but you have to choose between two different

schemes:

Scheme 1: pays a single payment after 6 years, equivalent to your initial

investment plus 30% of the initial investment.

Scheme 2: pays interest compounded annually at a rate of 4.2% per

annum.

a) Which scheme results in the largest return after 6 years? (6)

b) Assuming that interest is compounded annually, what interest rate

would give the same total return after 6 years as Scheme 1? (6) - Aug 11th 2012, 12:32 PMSpringFan25Re: interest question, please help!
the accumulation on sch 1 is: $\displaystyle 1.3 \times 6000 $

the accumulation for sch 2 is $\displaystyle 6000 \times (1+i)^6$

you want these to be equal:

$\displaystyle 6000 \times (1+i)^6 = 1.3 \times 6000 $

solve for i. - Aug 12th 2012, 09:27 AMWilmerRe: interest question, please help!
Typo SF: 5000

- Aug 13th 2012, 04:49 AMyoshimuruRe: interest question, please help!
don't want to sound dumb but i cant remember how to work out those equations, any point in the right direction would help alot, cheers guys and thanks for your input so far. :)

- Aug 13th 2012, 08:33 AMWilmerRe: interest question, please help!
Well, you need to solve this for r (r = rate):

5000(1 + r)^6 = 5000(1.3)

Divide by 5000:

(1 + r)^6 = 1.3

Can you finish it now?

Hint: if a^x = b, then a = b^(1/x)