Question

You deposit $800K on February 25, 2011.

When will the investment be worth $1.2M at 12% interest compounded annually? What if the interest were compounded daily with a standard conversion rate of 1 year = 360 days? Why is the second date earlier?

Answer 1

	When interest is compounded Annually
1-	time period in years	using nper function in M S Excel	nper(rate,pmt,pv,fv,type)   rate = 12% pmt = 0 pv =-800000 fv = 1200000 type = 0	NPER(12%,0,-800000,1200000,0)	3.58
	When interest is compounded Daily basis (day basis)
2-	time period in days	using nper function in M S Excel	nper(rate,pmt,pv,fv,type)   rate = 12/360 =.03333% pmt = 0 pv =-800000 fv = 1200000 type = 0	NPER(0.0333%,0,-800000,1200000,0)	1217.815659
	time period in years	1217.8156/360	3.38
	Second date is earlier one because interest is compounded on daily basis while in the first option it is compounding yearly