Question

1. Find monthly compounded interest rate if holding period return (HPR) over one year and a half is 17%
2. A sum of $5000 is invested at an interest rate of 9% per year. Find the time required for the money to double if the interest is compounded continuously

Answer 1

(a) Holding Period Return = 17 % and Holding Period = 1,5 years or 18 months

Therefore, Monthly Compounded Interest Rate = [(1.17)^(1/18) - 1] x 100 = 0.8761 %

(b) Initial Investment = $ 5000, Annual Interest Rate = 9 % and Target Future Value = 2 x 5000 = $ 10000

Let the required time period be T years

Therefore, 10000 = 5000 x e^(0.09 x T)

= (0.09 x T)

T = / 0.09 = 7.701635 years ~ 8 years