Question

At an expected rate of return of 7% compounded semi-annually, what is the expected percentage growth of a portfolio after 4 years?

Answer 1

The expected growth is 17.2%

Explanation:

Let us have a present initial value of 500

we then proceed to get the value after 4 years

We use the compound interest formula to get the amount

That will be;

A = P( 1 + r/n)^nt

P = 500

r = 4% = 4/100 = 0.04

n is 2: semi annually means twice per year

t is 4

So

using the formula, we have that;

P = 500(1 + 0.04/2)^(2 * 4)

= 500(1.02)^8

= 586 approximately

So the percentage growth rate is as follows

(586-500)/500 * 100

= 86/500 * 100 = 17.2%