Backward compunder?

Question

Hi guys if i earn 33.1% in 3 years, what would be my effective annual rate of return?

Can anyone provide me with the formulae?

Answer 1

Depends on how often it's being compounded.

Here's the formula to figure out how much something is worth in the future.

Total amount
= principal * (1 + int rate/period)^(number of periods)



In your case,

rate of return would be figured out as follows
new # / principal -1 = (int rate/period)^ # of periods

1331/1000 = .331 = (1+rate/12)^36

Annual Rate
= (1+overall effective rate)^(1/period) X # periods/yr - 1

So if you compounded quarterly, your formula would be
(1.331)^(1/12) x 4 - 1

So if you compounded daily, your formula would be
(1.331)^(1/1095)x 365 - 1

And if it's just annually, then the formula's much simpler
(1.331)^(1/3) X 1 - 1

Hope that helps!