Question

Mr. Sansome withdrew$1000 from a savings account and invested it in common stock. At the end...

Mr. Sansome withdrew$1000 from a savings account

and invested it in common stock. At the end of 5

years, he sold the stock and received a check for

$1307. If Mr. Sansome had left his $1000 in the savings

account, he would have received an interest rate

of 5%, compounded quarterly. Mr. Sansome would

like to compute a comparable interest rate on his

common stock investment. Based on quarterly compounding,

what nominal annual interest rate did Mr.

Sansome receive on his investment in stock? What

effective annual interest rate did he receive?

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