In order to compare investments, analysts will convert monthly, quarterly, semi-annual rates to annual rates.

If an investment of $100,000 is invested at 1.5% per month compounded monthly, the growth can be modeled by the equation:

A(t)=100,000(1.015)^12t

What is the equivalent annual growth rate for this investment (rounded to the nearest tenth of a percent) and what is it worth (rounded to the nearest whole dollar) after 15 years?

Select one:

a. 19.6%, and $1,458,437

b. 15.0% and $813,706

c. 25.1% and $2,876,467

d. 12.0% and $547,357

Guest Feb 22, 2019

#1**+1 **

1) Interest rate conversion:

Effective annual rate =[1 + 1.5%]^12

=[1 + 0.015]^12

=[1.015]^12

=1.19561817... - 1 x 100

=~19.6% - effective annual rate.

2) FV =PV x [1 + R]^N

=PV x [1 + 1.5%]^(15*12)

=$100,000 x [1.015]^180

=$100,000 x 14.58436768913............

=$1,458,437 - Growth in this investment after 15 year @ 1.5% comp.monthly

The answer is "a".

Guest Feb 22, 2019