Okay, lets look at this from my answer backwards
r=1.25^(1/9)-1 This is the answer that I got for the effective 4 monthly interest rate.
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Now, the effective 3 yearly interest rate is (1+r) ^9-1= This simplifies to 0.25
We have a perpetuity paying €10 at the end of each 3-year period with the first payement at the end of year 6 with a present value PV1 = €32.
PV=32euros, After 3 years this has grown to 1.25*32= 40euros, at the end of the next 3 years 10 euros will be earned in interest. This is then paid out as the regular payment.
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Now the 4 monthly interest rate is 1.25^(1/9)-1 and the regular payment is 1 euro
R=PV*interest rate
PV=1/[(1.25^(1/9)-1] = 39.83 euros
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So far so good. Is it that you do not accept that 25% every 3 years is equivalent to 1.25^(1/9)-1 every 4 months
Say you invest $P and leave it for 3n years
okay the 4 monthly one will grow to P[1.25^(1/9)-1+1]^(3n*3)=P[1.25^(1/9)]^(9n)=P[1.25^n]
The 3 yearly one will grow to P[1.25^n]
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Reinout, you can accept Morgan Tud's answer if you please, he is a fine Doctor and he also knows many curses, but I do not believe his answer is correct.
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I do owe you an apology Morgan Tud. Our answers are now the same. Mine would have be correct from start had there been but an extra 4 months in a year. A 16month year. umm Maybe I would have more time to get things done this way.
My method is still preferable to yours! Why worry this reinout lad with yearly interest when it has nought to do with the task at hand!
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