You have $2000 that you invested in an account t today. Interest is compounded monthly and...
You have $2000 that you invested in an account t today. Interest is compounded monthly and you will withdaw $4000 in exactly 10 years. What is the nominal interest rate?
Homework Answers
| We have the equality, | |
| 4000 = 2000*(1+r)^120, where r = nominal interest rate/12. | |
| Solving for r, | |
| r = (4000/2000)^(1/120)-1 = 0.005792941 | |
| Nominal interest rate = r*12 = ((4000/2000)^(1/120)-1)*12 = | 6.95% |
| CHECK: | |
| FV = 2000*(1+0.0695/12)^120 = | $ 3,999.39 |
| Difference due to approximation in r*12 |
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