Hi All,
I hope someone could help me to understand what is happening here with this example.
EXAMPLE:
Given that: A(t,t+h)=1+hih ,
where CA(t1,t2) is an accumulation factor of an investment C.
If we invest £80 at time 5 and the accumulated amount at time 8 is £100.
A(5,8)=100/80=1.25 AND i3(5)=(1.25 -1)/3=8.33%
If the time above is in years, what is the effective annual interest rate?
I can see the answer from the notes is 1.251/3 -1=7.72% But I don't fully understand WHY.
Could someone explain why?
Thanks in advance
I hope someone could help me to understand what is happening here with this example.
EXAMPLE:
Given that: A(t,t+h)=1+hih ,
where CA(t1,t2) is an accumulation factor of an investment C.
If we invest £80 at time 5 and the accumulated amount at time 8 is £100.
A(5,8)=100/80=1.25 AND i3(5)=(1.25 -1)/3=8.33%
If the time above is in years, what is the effective annual interest rate?
I can see the answer from the notes is 1.251/3 -1=7.72% But I don't fully understand WHY.
Could someone explain why?
Thanks in advance