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Math Help - interest question, please help!

  1. #1
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    interest 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!,
    Last edited by yoshimuru; August 11th 2012 at 07:43 AM.
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  2. #2
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    Re: interest question, please help!

    post the entire question please
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  3. #3
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    Re: 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)
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  4. #4
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    Re: interest question, please help!

    the accumulation on sch 1 is: 1.3 \times 6000

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


    you want these to be equal:
    6000 \times (1+i)^6 = 1.3 \times 6000
    solve for i.
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  5. #5
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    Re: interest question, please help!

    Typo SF: 5000
    Thanks from SpringFan25
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  6. #6
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    Re: 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.
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  7. #7
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    Re: 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)
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