Question

Five years ago, you put $20,000 into an interest-earning account. The interest rate is compounded monthly....

Five years ago, you put $20,000 into an interest-earning account. The interest rate is compounded monthly. Today your deposit is worth $30,000. What is the effective annual interest earned on the account? please show how to solve using finance calculator.

Homework Answers

Answer #1

Present value= $20,000

Future value= $30,000

Time= 5 years*12= 60 months

The yield to maturity of the deposit is calculated with the help of a financial calculator.

The below has to be entered in a financial calculator:

PV= -20,000; FV= 30,000; N= 60

Press CPT and I/Y to calculate the yield to maturity

The yield to maturity is 0.6781/12= 0.0565 5.65%.

The effective annual rate is calculated using the below formula:

EAR= (1+r/n)^n-1

Where r is the interest rate and n is the number of compounding periods in one year.

EAR= (1+0.0565/12)^12-1

        = 1.0580-1

        = 0.0580*100= 5.80%.

The effective annual rate earned on the account is 5.80%.

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
You deposit $300 each month into an account earning 2% annual interest compounded monthly A. How...
You deposit $300 each month into an account earning 2% annual interest compounded monthly A. How much money will you have in your account in 35 years? B. How much total money will you put into the account ? C. How much total interest will you earn?
You deposit $2000 in an account earning 3% interest compounded monthly How much will you have...
You deposit $2000 in an account earning 3% interest compounded monthly How much will you have in the account in 20 years? How much interest will you earn? You deposit $10,000 in an account earning 4% interest compounded monthly. How much will you have in the account in 25 years? How much interest will you earn?
1) You deposit $500 each month into an account earning 3% interest compounded monthly. a) How...
1) You deposit $500 each month into an account earning 3% interest compounded monthly. a) How much will you have in the account in 25 years? b) How much total money will you put into the account? c) How much total interest will you earn? 2) Suppose you invest $190 a month for 6 years into an account earning 7% compounded monthly. After 6 years, you leave the money, without making additional deposits, in the account for another 21 years....
Twenty years ago, your grandfather deposited $500 in a savings account earning 4% annually, with interest...
Twenty years ago, your grandfather deposited $500 in a savings account earning 4% annually, with interest compounded on a quarterly basis. What is that savings account worth today? What would the savings account be worth if interest were compounded monthly?
If you deposit $3,100 today into an account earning an annual rate of return of 7...
If you deposit $3,100 today into an account earning an annual rate of return of 7 percent, what would your account be worth in 30 years? If you deposit $5,000 today into an account earning an annual rate of return of 9%, in the thrid year how much interest would be earned?
Fifteen years ago, you deposited $12,500 into an investment fund. Five years ago, you added an...
Fifteen years ago, you deposited $12,500 into an investment fund. Five years ago, you added an additional $20,000 to that account. You earned 8%, compounded semi-annually, for the first ten years, and 6.5%, compounded annually, for the last five years. Required: a) What is the effective annual interest rate (EAR) you would get for your investment in the first 10 years? b) How much money do you have in your account today? c) If you wish to have $85,000 now,...
You deposit $300 each month into an account earning 5% interest compounded monthly. a) How much...
You deposit $300 each month into an account earning 5% interest compounded monthly. a) How much will you have in the account in 30 years? $ b) How much total money will you put into the account? $ c) How much total interest will you earn? $
You deposit $500 each month into an account earning 4% interest compounded monthly. How much will...
You deposit $500 each month into an account earning 4% interest compounded monthly. How much will you have in the account in 30 years? How much total money will you put into the account? How much total intrest will you earn?
Fifteen years ago, you deposited $12,500 into an investment fund. Five years ago, you added an...
Fifteen years ago, you deposited $12,500 into an investment fund. Five years ago, you added an additional $20,000 to that account. You earned 8%, compounded semi-annually, for the first ten years, and 6.5%, compounded annually, for the last five years. Required: 1. a) What is the effective annual interest rate (EAR) you would get for your investment in the first 10 years? 2. b) How much money do you have in your account today? 3. c) If you wish to...
a. You bought a car 5 years ago for $30,000. This type of car is known...
a. You bought a car 5 years ago for $30,000. This type of car is known to depreciate at a compounded annual rate of 8% per year (given normal mileage and wear-and-tear). If your car depreciated at this rate, how much is it worth today? (Hint: let r = -0.08 and solve for FV). c. If you deposit $1000 today in an account earning 10% APR compounded annually, and you deposit another $1000 next year (at same rate), and finally...