1 answer

Plz explain the formula for this question in depth and how it is formed? An investor...

Question:

An investor earns 15% in year i,-5% in year 2, and 8% in year 3. What is the effective interest rate for the 3 year period?

Plz explain the formula for this question in depth and how it is formed?

An investor earns 15% in year i,-5% in year 2, and 8% in year 3. What is the effective interest rate for the 3 year period?

Answers

Answer:

Let us assume we invest amount = 1

At the end of year 1 amount will be = 1 + 15%

At the end year 2 amount will be = (1 + 15%) * (1 - 5%)

At the end year 3 amount will be = (1 + 15%) * (1 - 5%) * (1 + 8%)

Effective interest rate for 3 year period = ((1 + 15%) * (1 - 5%) * (1 + 8%)) (1/3) - 1

= 5.6692% or 5.7%

Alternately:

Effective annual interest rate = (Ending Value / Beginning value)1/n - 1

Beginning value =1

Ending value = (1 + 15%) * (1 - 5%) * (1 + 8%) = 1.1799

Effective annual interest rate = 1.1799 (1/3) - 1

= 5.6692% or 5.7%

.

Similar Solved Questions

1 answer
Some enzymes have a very flat pH profile m dash that is, they have essentially the...
Some enzymes have a very flat pH profile m dash that is, they have essentially the same activity over a broad pH range. How might you explain this observation? Michaelis-Menten Kinetics. Figure 6-19 represents a Michaelis-Menten plot for a typical enzyme, with initial reaction velocity plotted as a ...
1 answer
Thinking exercise (feel free to share with your neighbor) 1. nat are some of the important...
Thinking exercise (feel free to share with your neighbor) 1. nat are some of the important differences between popular and scholarly sources that could help you tell them apart? In what situations would a popular source be the best choice to use? A scholarly, peer-reviewed source?...
1 answer
1. discuss the concept of an ecovillage, 2. discuss the qualities of the Earthships or the...
1. discuss the concept of an ecovillage, 2. discuss the qualities of the Earthships or the ecovillage. What did you find attractive and why? What did you find impractical and why? 3. discuss how either of these lifestyle choices could fit into your life. Do you see yourself adopting any part of thes...
1 answer
Question 4 (1 point) Blanton is preparing their multi-step income statement and have downloaded their income...
Question 4 (1 point) Blanton is preparing their multi-step income statement and have downloaded their income statement accounts. Two accounts were downloaded incorrectly and do not belong on the income statement (HINT: you have to identify the wrong accounts). These two replace the wrong accounts s...
1 answer
Part 3: Final Accounts - 30 marks The following Trial Balance was extracted from the books...
Part 3: Final Accounts - 30 marks The following Trial Balance was extracted from the books of A.Scholes at the close of business on 28 February 2019. Dr, $ Cr, $ Purchases and Sales 11,280 19,740 Cash in Bank 1,140 Cash in hand 2 10 Equity Account 1 March 2018 9,900 Drawings 2,850 Office furniture 1...
1 answer
7 points Q1. Which of the following are characteristics of forward and/or futures contracts or neither?...
7 points Q1. Which of the following are characteristics of forward and/or futures contracts or neither? Forward Contract Futures Contract A contract relating to a transaction at a future date. Require traders to provide margin. Are traded over the counter. Are guaranteed by a clearing house. 0 0 0 H...
1 answer
3. Consider the following stag hunt game. Two hungry hunters go to the woods with the...
3. Consider the following stag hunt game. Two hungry hunters go to the woods with the aim of catching a stag, or at least a hare. They can catch a stag only if both remain alert and devote their time and energy to catching it. Catching a hare is less demanding and does not require the cooperation of...
1 answer
8) If you dropped these chemicals in water, would the solution turn acidic, basic, or stay...
8) If you dropped these chemicals in water, would the solution turn acidic, basic, or stay neutral: Group 1: a) AgClo, b) KCIOC) Na metal d)HI e) Ca(OH)2...
1 answer
What is one way in which the various ‘single-payer’ bills introduced in Congress tend to differ?
What is one way in which the various ‘single-payer’ bills introduced in Congress tend to differ?...
1 answer
Help!! 4. Corporate Valuation Model ABC Corp. just reported Free Cash Flow (FCF) of $235.69 million...
help!! 4. Corporate Valuation Model ABC Corp. just reported Free Cash Flow (FCF) of $235.69 million Managers expect that FCF will continue to grow at a constant rate of 4%. The firm also has some short-term marketable securities worth $50 million that are considered non-operating assets, so are n...
1 answer
5 points Save Answ Vijay Inc purchased a three-acre tract of land for a building site...
5 points Save Answ Vijay Inc purchased a three-acre tract of land for a building site for $410,000. On the land was a building with an appraised value of $130.000. The company demolished the old building at a cost of $11.900, but was able to sell scrap from the building for $1600. The cost of title ...
1 answer
The readings need to be completed BEFORE you can start on the remainder of the activities....
The readings need to be completed BEFORE you can start on the remainder of the activities. see below Retrieve the article: Hess, R., Weinland, J., & Saalinger, N. (2010). Knowledge of female genital cutting and experience with women who are circumcised: A survey of nurse-midwives in the United S...
1 answer
Part A Selpat Compeany produoes silicons baking man in two processes heating and swnong An materials...
Part A Selpat Compeany produoes silicons baking man in two processes heating and swnong An materials art iddd麒the begm'ng of de lleing Deprtncnt proces. The coneuny ssed weighood-averagc method io compute oqivaless usiis On Otober 1 Heating Departmeal precessed 2,000 mis tat were 70% oorp...
1 answer
Evaluation and Medication Scorecard to obtain feedback regarding clinical performance and incorporate the preceptor's feedback into...
Evaluation and Medication Scorecard to obtain feedback regarding clinical performance and incorporate the preceptor's feedback into Debrief Reflection (if assigned). 6. Before submitting the Quiz, copy the completed answers to a Word document. Save the Word document to the desktop for later use ...
1 answer
Select all of the trends our textbook discusses as compelling trends. A. Computers are linking health...
Select all of the trends our textbook discusses as compelling trends. A. Computers are linking health care and biomedical research B. Information services are personalized to the individual user. C. More and more, the population’s activities are online and collaborative D. EHRs are transformin...
1 answer
The rate constant (k) for a reaction was measured as a function of temperature. A plot...
The rate constant (k) for a reaction was measured as a function of temperature. A plot of lnk versus 1/T(in K) is linear and has a slope of −1.30×104 K . You may want to reference (Page) Section 14.5 while completing this problem. Calculate the activation energy for the reaction. Express...
1 answer
Draw the major organic product(s) of the following reaction CH3 H3C-C-Cl NaOH + CH3 - You...
Draw the major organic product(s) of the following reaction CH3 H3C-C-Cl NaOH + CH3 - You do not have to consider stereochemistry. If no reaction occurs, draw the organic starting material. When SN1 & El pathways compete, show both the substitution and the elimination products. Separate multiple...
1 answer
T ion The addition of an alcohol to an acid chloride is an example of alcoholysis (alcohol addition with bond brea...
t ion The addition of an alcohol to an acid chloride is an example of alcoholysis (alcohol addition with bond breakage). Consider the acoholysi below and answer the questions that follow. ath attempt 4th attempt Part 1 (1 point) See Periodic Table O See Hi Show the tetrahedral intermediate that is f...
1 answer
7 8 9 AND 10 PLEASE THANK YOU! 7. [-/1 Points DETAILS OSCOLALG1 6.7.400-411C.WA.TUT. MY NOTES...
7 8 9 AND 10 PLEASE THANK YOU! 7. [-/1 Points DETAILS OSCOLALG1 6.7.400-411C.WA.TUT. MY NOTES ASK YOUR TEACHER PRACTICE ANOTHER The following equation represents the growth of bacteria in a particular food product, where t represents time in days and no represents the number of bacteria. 0.1t AL)...
1 answer
An article in Environment International (Vol. 18, No. 4, 1992) describes an experiment in which the...
An article in Environment International (Vol. 18, No. 4, 1992) describes an experiment in which the amount of radon released in showers was investigated. Radon-enriched water was used in the experiment, and six different orifice diameters were tested in shower heads. The data from the experiment are...