Answered

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A friend tells you she has saved for 7 years and has a present sum of $10,000, which earned at the rate of 8% per year, compounded quarterly.

Required:
a. Determine the equivalent amount she had to start with 7 years ago.
b. Write the EFFECT function to find the effective rate per year.

Sagot :

The equivalent amount she had to start with 7 years ago is $269.90.

The function to find the effective rate per year is 1.02^4 - 1.

What is the equivalent amount?

The formula that can be used to determine the equivalent amount is:

present sum / annuity factor

Annuity factor = {[(1+r)^n] - 1} / r

Where:

  • r = interest rate = 8%/4 = 2%
  • n = number of years = 7 x 4 = 28

{1.02^28} - 1 / 0.02 = 37.05121

$10,000 / 37.05121 =  $269.90

What is the effective rate per year?

Effective annual rate = (1 + APR / m ) ^m - 1

M = number of compounding

1.02^4 - 1

To learn more about the effective annual rate, please check: https://brainly.com/question/4064975

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