Originally Posted by
ticbol Here is one way.
I don't know your formula but a few play showed it came from the simple formula
A = P[(1+r)^n]
where
A = total amount in n years-----------------your Fv
P = initial amount, or amount in zero year----your Pv
r = rate of interest per year------------------your rate of appreciation
n = number of years
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Since it is vacation time, lots of sparetime, let us review how that simple formula was derived.
0 year:
Ao = P
After 1 year:
A1 = P +P*r = P(1+r)
After 2 years:
A2 = P(1+r) + [P(1+r)]*r = [P(1+r)](1+r) = P[(1+r)^2]
....After n years:
An = P[(1+r)^n]
----->>> "Ao, A1, A2....An" are read "A sub 0", "A sub 1", "A sub 2"...."A sub n"
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So you have
Fv = (Pv)[(1+r)^n]
Divide both sides by Pv,
(Fv)/(Pv) = (1+r)^n
To isolate r, get the nth roots of both sides,
[(Fv)/(Pv)]^(1/n) = 1+r
Hence,
r = [(Fv)/(Pv)]^(1/n) -1 ---------------(i), it is minus 1.
Yours is +1, that's why you're getting wrong answers from your calculator.
So, with n=2,
r = [1000/700]^(1/2) -1
r = 1.1952 -1
r = 0.1952
r = 19.52 percent ---------------answer.