Discount rate confusion: accumulated value of £1,500 at the end of 2 years on the basis of....

[Maria33]

Hi there,
I am currently studying financial maths at intro level but I am having some confusion with the following question "Determine the accumulated value of £1,500 at the end of 2 years on the basis of a nominal annual rate of discount of 4.5% convertible quarterly. Do I convert the nominal discount rate to an effective discount rate to begin with?

 

[Denis]

Yes. 1500 * (1 + .045/4)^8

 

[Maria33]

Yes. 1500 * (1 + .045/4)^8

This doesn't give the correct answer which is listed as £1,642.09881.

 

[Denis]

My answer evaluates to 1640.43692 which is correct IF
the interest rate is 4.5% annual compounded quarterly.

Perhaps there is a different meaning with "annual rate of discount"
and "convertible quarterly"...both terms are mysterious to me.

Please come back and let us know how that 1,642.09881
was obtained....surely your teacher will know...thanks...

 

[jonah2.0]

Beer soaked comment follows.
Maybe it's a rounding thing.

 

[Denis]

Don't think so, Sir Jonah: difference is ~1.6