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!,
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!,
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)
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.