SOLUTION: Suppose that over a six-year period ,1,000 dollars accumulated to 1,959 dollars in an investment certificate in which interest was compounded quarterly.
(a)Find the nominal rate o
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-> SOLUTION: Suppose that over a six-year period ,1,000 dollars accumulated to 1,959 dollars in an investment certificate in which interest was compounded quarterly.
(a)Find the nominal rate o
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Question 1098198: Suppose that over a six-year period ,1,000 dollars accumulated to 1,959 dollars in an investment certificate in which interest was compounded quarterly.
(a)Find the nominal rate of interest, compounded quarterly, that was earned. (Round your answer to 2 decimal places.)
(b) Find the effective annual rate (EAR) rounded to 2 decimal places.
You can put this solution on YOUR website! (a)To solve this, we need:
1959=1000*(1+r/4)^(4*6)
1.959=(1+r/4)^24
ln 1.959=ln (1+r/4)^24=24 ln (1+r/4)
ln (1+r/4)=0.02801808912343348753142591433615
e^ln (1+r/4)=1+r/4=e^0.02801808912343348753142591433615=1.0284142873661539848196528368801
r=.1137 or 11.37%
(b)(1+.1137/4)^4 -1=1.1185937952418743147625868352589-1=0.1186=11.86% EAR
