Question

Problem 3.24 ffective interest rate and PR entire compounain Ans: a. 6.66% Aruna invested Rs 150,000 eighteen months ago. Currently, the investment is worth Rs 168,925. Aruna knows the investment has paid interest every three months, but she does not know what the yield on her investment is. Compute both annual percentage rate (APR) and the effective annual rate of interest on her investment. Ans: 8%; 8.24% arehouse To finance the purchase you have​

Answer 1

Answer:To calculate the annual percentage rate (APR) and effective annual rate of interest on Aruna's investment, we can use the following formula:

APR = (FV/PV)^(1/n) - 1

Where FV is the Future Value, PV is the Present Value, and n is the number of periods.

In this case, FV = 168,925, PV = 150,000, and n = 1.5 (since the investment was held for 18 months).

Therefore, the APR = (168,925/150,000)^(1/1.5) - 1

APR = 6.66%

The effective annual rate of interest (EAR) can be calculated using the following formula:

EAR = (1 + APR/m)^m - 1

Where m is the number of compounding periods in one year.

In this case, m = 4 (since interest is paid every 3 months).

Therefore, the EAR = (1 + 6.66%/4)^4 - 1

EAR = 8.24%