Originally Posted by
krzyrice I need help with how to calculate nominal annual rate.
1) A sum of $850 is invested for 10 years and the interest is compounded quarterly. There is $1000 in the account at the end of 10 years. What is the nominal annual rate?
So to set this up is the equation:
1000 = 850(1+r/4)^(4*10) and we solve for r? I don't know if that equation is correct. But when I solve for it the answer comes out to be 0.0163 or 1.63%. Please confirm with me if that answer is correct.
2) An investment grows by 3% per year for 10 years. By what percent does it increase over the 10-year period?
Is the formula: P(1 + 0.03/1)^(1*10) and we are trying to find the effective rate. So should the answer be 34.39%?
3) If the balance, M, at time t in years, of a bank account that compounds its interest payments monthly is given by
M = M0(1.07763)^t
Note: In the M0, the 0 is a subscript.
What is the nominal annual rate?
Again I need help with nominal annual rate. In the back of the book it says the nominal annual rate is 7.5%. But I do not get how to find that answer. Please shed some light on this issue and help me with finding out how to solve this problem.
Thank you so much.