If an investment of $400,000 were to grow to $5,000,000 over a period of 20 years, 13.04% is the stated annual rate at which it must be invested, given that the return is compounded semiannually.
Considering that the return is compounded semi-annually,
PV = $400,000, FV = $5,000,000, N = (20)(2) = 40, and CPT I/Y:
Semiannual discount rate is equal to 6.52%.
Assumed yearly rate = 6.52 x 2 = 13.04%
Which Annual Interest Rate Is Stated?
The return on investment (ROI) presented as a yearly percentage is known as the stated annual interest rate (SAR), or ROI. It is a straightforward computation of interest rates that does not take annual compounding into consideration.
POINTS TO NOTE
The yearly rate that is presented is an annualized rate of interest that does not account for intra-year compounding.
The intra-year compounding of interest is taken into account by effective yearly rates.
Depending on the financial product, banks frequently display the rate that seems to be more attractive.
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