Question

You invested $ 100 on January 1 , 2007 . The investment was worth $ 190...

You invested $ 100 on January 1 , 2007 . The investment was worth $ 190 on July 1 , 2012 . The effective rate of return for the first year was 12 % . Determine the annual effective rate of return from January 1 , 2008 , to July 1 , 2012

Homework Answers

Answer #1

On January 1, 2008 our investment is worth 100 * (1 + 0.12) = $112

The number of 6-month periods between January 1 , 2008 and July 1 , 2012 is 9.

n = 9

FV = $190

PV = $112

r = ?

FV = PV * (1 + r)^n

(1 + r)^n = FV/PV

(1 + r) = (FV/PV)^(1/n)

1 + r = (FV/PV)^(1/n) - 1

r = (FV/PV)^(1/n) - 1

r = (190/112)^(1/9) - 1

r = 0.06048359132

This r is the effective 6-month rate

The annual effective rate = (1 + 0.06048359132)^2 - 1

The annual effective rate = 0.1246254475

The annual effective rate = 12.46254475%

Can you please upvote? Thank You :-)

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
1. You are offered an investment that will pay $100 annually for 7 years (the first...
1. You are offered an investment that will pay $100 annually for 7 years (the first payment will be made at the end of year 1) plus $2,900 at the end of year 7. If the appropriate discount rate is 5%, assume annual compounding, what is the investment worth to you today? 2. You are offered an investment that will pay $100 annually for 7 years (the first payment will be made at the end of year 1) plus $2,900...
Investment X for 100, 000 is invested at a nominal rate of interest, j, convertible semiannually....
Investment X for 100, 000 is invested at a nominal rate of interest, j, convertible semiannually. After four years, it accumulates to 214, 358.88. Investment Y for 100, 000 is invested at a nominal rate of discount, k, convertible quarterly. After two years, it accumulates to 232, 305.73. Investment Z for 100, 000 is invested at an annual effective rate of interest equal to j in year one and an annual effective effective rate of discount equal to k in...
Suppose you invested $5,000 in a CD on January 1, 2015 maturing in 20 years that...
Suppose you invested $5,000 in a CD on January 1, 2015 maturing in 20 years that pays interest of 4% per year compounded semiannually and credited at the end of each six month period. You don't withdraw any money from the CD during its term. (a) How much money was in the CD account on July 1, 2015? b) How much money was in the CD account on January 1, 2016? (c) How much money will be in the CD...
Suppose you invested $5,000 in a CD on January 1, 2015 maturing in 20 years that...
Suppose you invested $5,000 in a CD on January 1, 2015 maturing in 20 years that pays interest of 4% per year compounded semiannually and credited at the end of each six month period. You don't withdraw any money from the CD during its term. (a) How much money was in the CD account on July 1, 2015? (b) How much money was in the CD account on January 1, 2016? (c) How much money will be in the CD...
5. An investment has the following cash flows: July 12, 2008 $ -600 January 21, 2009...
5. An investment has the following cash flows: July 12, 2008 $ -600 January 21, 2009 $ +200 March 7, 2010 $ +300 June 25, 2011 $ +400 September 18, 2012 $ +800 March 29, 2015 $ +200 September 30, 2017 $ -2,000 a. Calculate the Net Present Value of this investment. Assume the annual discount rate is 15%. b. Create a data table and graph illustrating the impact of the discount rate on the Net Present Value of this...
On January 1, 2007, LKM got an $18,000, 0% note receivable from Suncor in exchange for...
On January 1, 2007, LKM got an $18,000, 0% note receivable from Suncor in exchange for a delivery furniture LKM no longer needed. Suncor is repaying the note in three equal instalments of $6,000, with the first payment due January 1, 2008. The market rate of interest when the note was received was 5% per annum. The sale of the furniture was correctly recorded. Based on IFRS standard, write the year-end (Dec 31, 2007)adjusting entries for this transaction.
On January 1, 2007, Garner Company sold property to Agler Company which originally cost Garner $760,000....
On January 1, 2007, Garner Company sold property to Agler Company which originally cost Garner $760,000. There was no established exchange price for this property. Agler gave Garner a $1,200,000 zero-interest-bearing note payable in three equal annual installments of $400,000 with the first payment due December 31, 2007. The note has no ready market. The prevailing rate of interest for a note of this type is 10%. The present value of a $1,200,000 note payable in three equal annual installments...
SHOW ALL WORK Ten years ago, Bruce invested $1,250. Today, the investment is worth $3,550. If...
SHOW ALL WORK Ten years ago, Bruce invested $1,250. Today, the investment is worth $3,550. If interest is compounded annually, what annual rate of return did Bruce earn on his investment?
Consider an investment in the Jaba Mutual Fund. You bought the investment at the end of...
Consider an investment in the Jaba Mutual Fund. You bought the investment at the end of Year 0 for $100 million, you invested $10 million at the end of the first year and invested $20 million at the end of the second year. The investment was worth $140 million at the end of the third year. What is your money-weighted rate of return on this investment? Report your answer in decimal form to four decimal places (e.g., 1.234% report as...
Fifty years ago, your grandfather invested $4,500. Today, that investment is worth $430,065.11. What is the...
Fifty years ago, your grandfather invested $4,500. Today, that investment is worth $430,065.11. What is the average annual rate of return he earned on this investment? 11.71 percent 9.95 percent 7.90 percent 10.40 percent 6.67 percent