Question

Find the nominal annual rate of interest compounded monthly if $1200 accumulates to $1618.62 in five years.​

Answer 1

Nominal annual rate of interest(r) = 2.5% (Approx)

Step-by-step explanation:

Given:

Present value (P) = $1,200

Future value (F) = $1,618.62

Number of year = 5 year = 5(12) months = 60 months

Find:

The nominal annual rate of interest(r)

Computation:

`Nominal\ annual\ rate\ of\ interest(r) = \sqrt[n]{(F)/(P) }-1 \\\\Nominal\ annual\ rate\ of\ interest(r) = \sqrt[60]{(1,618.62)/(1,200) }-1 \\\\Nominal\ annual\ rate\ of\ interest(r) = 0.004949\\\\Nominal\ annual\ rate\ of\ interest(r) = 0.5 %`

Actual periodic Nominal annual rate of interest(r) = 0.5 (5year)

Nominal annual rate of interest(r) = 2.5% (Approx)