We use cookies to personalise content and advertisements and to analyse access to our website. Furthermore, our partners for online advertising receive pseudonymised information about your use of our website.
Please click on "Accept cookies" if you agree to the setting of cookies. Cookies that do not require consent remain unaffected by this, see
cookie policy and privacy policy.
DECLINE COOKIES

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