if u have $7 now and $8.10 in 3yrs wat is the effective annual interest rate ?

Question

i am trying to solve a math assignment and then put it into excel and i don't know how to do either. could someone help me please please. ??? thanks.

Answer 1

well, this is a time value of money problem. You have a present value ($7.00) and a future value ($8.10). if you are going to use excel, go to Insert Function or the "fx" button. Use the "Rate" function underneath the Financial category. When the popup screen appears, enter 3 for "Nper" Enter 0 for the "PMT" Enter -7 (Negative 7 because it represents money you are paying out) for "PV" Enter 8.10 for "FV" then click ok. The annual interest rate is 4.98%

Mathematically,

PV= FV/(1+r)^n

7.00 = 8.10 / (1+r)^3
7(1+r)^3 = 8.10
(1+r)^3 = 8.10/7
(1+r)^3 = 1.157143

1+r = CUbed root of 1.157143
1+r=1.0498
r = 0.0498 or 4.98%

Hope that helps.

Answer 2

backupplanc is technically correct. If you assume the actual rate is 5% $7.00 will become $8.10 in 3 years after rounding errors. I real life, a 5% rate is more likely than 4.98%

Answer 3

The useful interest fee is stumbled on via: ieff = (a million + r/m)^m -a million the place r is the nominal (annual) given fee and m is the style of compounding sessions/12 months. So on your case: ieff = (a million + 0.0.5/3)^3 - a million = 0.0457, or 4.fifty seven%