Interest rate - Can anyone help me with these math problems?

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northernlightxxl

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Problem 2:
If 640 dollars grow to 1280 dollars in four years, what is the effective interest rate of return on this investment?
 
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1280 to 640 is a growth of 200%. This means over 4 years 50% growth a year. But this cannot be correct since this is not the way effective interest is calculated. I know this but I cant figure out how to do it.
 
northernlightxxl said:
Problem 2:
If 640 dollars grow to 1280 dollars in four years, what is the effective interest rate of return on this investment?
Click to expand...
This is a compound-interest rate problem (and NOT simple-interest rate problem)!

What is the EQUATION for the amount accumulated - starting with initial amount Ao - after 'n' years at an r% APR?

From that equation you'll need to calculate 'r'. You may have to apply logarithm operation.
 
I see so the interest is compounded, thank you for your reply.

I dont understand your question precisely what do you mean by r% and APR?
 
northernlightxxl said:
I see so the interest is compounded, thank you for your reply.

I dont understand your question precisely what do you mean by r% and APR?
Click to expand...
In response #3, you had stated,

"1280 to 640 is a growth of 200%. This means over 4 years 50% growth a year. But this cannot be correct since this is not the way effective interest is calculated. I know this but I cant figure out how to do it."

In your statement,

r = 50% = 50/100 = 0.5 = APR

Thus (in general),

r = APR (annual percentage rate)
 
Thanks for your explanation.
The most difficult thing about this problem is that there are a lot of explanations how to find the effective interest rate. But in all these examples there is also compounded interest rate given.
In my problem you do not get any interest rate, you have to determine it from the change in dollars of the first to the second value.

Is there anyone who knows how to calculate the effective interest this way?
 
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