Question

You deposit a single payment of $5900 into a savings account. At the end of 8 years, you have $9,800 in the account. Find the nominal rate compounded quarterly earned by the account. Set up the equation of value using numbers from the problem. and find the nominal rate. Solve the problem using the algebraic method and showing the steps you used in arriving at your answer. Express your answer to four places after the decimal point. (Example: 0.1234)

Answer 1

Future Value:
FV = PV (1+r)^n
Where r is Int rate per period
n - No. of periods = 8 years * 4 = 32 quarters

Particulars	Amount
Present Value	$        5,900.00
Future Value	$        9,800.00
Periods	32

Future Value = present value * ( 1 + r )^n
$ 9800 = $ 5900 ( 1 + r ) ^ 32
( 1 + r ) ^ 32 = $9800 / $5900
( 1 + r ) ^ 32 = 1.661
( 1 + r ) = 1.661 ^ ( 1 / 32 )
( 1 + r ) = 1.016
r = 1.016 - 1
r = 0.016 i.e 1.6 % per quarter

annual nominal rate of interest = 1.6 % * 4 = 6.4 %

please comment if any further assistance is required.