SOLUTION: A fund earns interest at the nominal rate of 8% compounded quarterly. At the end of each quarter, just after interest is credited, an expense charge equal to 0.4% of the fund is

Question 1109512: A fund earns interest at the nominal rate of 8% compounded quarterly. At
the end of each quarter, just after interest is credited, an expense charge
equal to 0.4% of the fund is withdrawn. Determine the annual effective
rate realized by the fund.

Answer by addingup(3677) (Show Source): You can put this solution on YOUR website!
Annual means that our t (time) = 4 (4 quarters in a year). Thus, our interest is 0.08/4 = 0.02.
Just after interest is credited, an expense charge equal to 0.4% of the fund is withdrawn, leaving us with 99.6% of the money or 0.996. So, after this withdrawal our money becomes:
(1.02 x 0.99.6)^4 = 1.0652 which makes the effective annual interest rate 6.52%

RELATED QUESTIONS
1. What nominal rate compounded semi-annually is equivalent to a 10% effective rate?... (answered by ikleyn)

Question 1. How long will it take for an investment to double at 7%p.a. compounded... (answered by Boreal)

A local university is planning to invest $500,000 every 3 months in an investment which... (answered by Theo)

a local university is planning to invest $ 500,000 every 3 months in an investment which... (answered by ikleyn)

A local university is planning to invest $500,000 every 3 months in an investment which... (answered by CPhill)

Domenica invests $200 each quarter in a fixed interest mutual fund paying an annual of 7% (answered by Nate)

Colton's parents want to create a college fund that pays $2,600.00 paid at the end of... (answered by josmiceli,MathTherapy,greenestamps)

Younus Limited (YL) has borrowed an amount of Rs. 100,000 at an interest of 10% per annum (answered by Theo)

What is the nominal annual rate of interest compounded quarterly if a loan of $12,500 is... (answered by greenestamps)