Question

You invest $8,000 now and get $10,000 back in 8 years.

(A) What nominal interest rate convertible every four months did you earn?

(B) What nominal discount rate compounded monthly did you earn?

(C) What annual effective rate of discount did you earn?

Answer 1

a)
PV = 8000
FV = 10000
Nper = 8 * 3 = 24
PMT = 0

Nominal interest rate can be calculated by using the following excel formula:
=RATE(nper,pmt,pv,fv)
=RATE(24,0,-8000,10000)*3
= 2.80%

Nominal interest rate = 2.80%

b)
PV = 8000
FV = 10000
Nper = 8 * 12 = 96
PMT = 0

Nominal discount rate can be calculated by using the following excel formula:
=RATE(nper,pmt,pv,fv)
=RATE(96,0,-8000,10000)*12
= 2.79%

c)
PV = 8000
FV = 10000
Nper = 8
PMT = 0

Annual effective rate can be calculated by using the following excel formula:
=RATE(nper,pmt,pv,fv)
=RATE(8,0,-8000,10000)
= 2.83%