An investment will increase in value by 250% over the next 25 years. What is the annual interest rate which, when compounded qua

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2 years ago

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rterly, provides this return

1 answer:

Olenka [21] · Answer 1 · 2023-06-03T23:25:52+03:00

The annual interest rate will be 5.04% if the compounded quarterly provides this return.

<h3>What is annual interest rate?</h3>

The annual interest rate means the rate paid on investments without accounting for the compounding of interest within that year.

Let assume that PV = $100

Future Value = $100*(1+2.5)

Future Value = $100*3.5

Future Value = $350

Periods = Years*frequency

Periods =25 *4

Periods = 100

Quarterly Rate = (FV/PV)^(1/Periods)-1

Quarterly Rate = (350/100)^(1/100) - 1

Quarterly Rate = 1.01260642915 - 1

Quarterly Rate = 0.01260642915

Annual rate = Quarterly rate * Frequency

Annual rate = 0.01260642915 * 4

Annual rate = 0.0504257166

Annual rate = 5.04

in conclusion, the annual interest rate will be 5.04% if the compounded quarterly provides this return.

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