My Math Forum  

Go Back   My Math Forum > Science Forums > Economics

Economics Economics Forum - Financial Mathematics, Econometrics, Operations Research, Mathematical Finance, Computational Finance


Reply
 
LinkBack Thread Tools Display Modes
May 6th, 2013, 09:35 AM   #1
Newbie
 
Joined: May 2013

Posts: 1
Thanks: 0

Effective rate of interest

Hi!

I don't know how to calulate the effecitive rate of interest for an investment. I really haven't understood its definition and how to calculate it. I have calculated the following:

Total investment cost: 700 000 money unit
No investment, put money in bank instead of investing, 20 years, at an interest of 3%, 1264277.867 mu.
Investment. My investment will give an income every year, which I put to bank and after 20 years, I should have 220941.7627 mu.

So with this, how do I calculate the effective rate of interest?
Take care!
jenjenjen is offline  
 
May 6th, 2013, 11:04 AM   #2
Global Moderator
 
CRGreathouse's Avatar
 
Joined: Nov 2006
From: UTC -5

Posts: 16,046
Thanks: 938

Math Focus: Number theory, computational mathematics, combinatorics, FOM, symbolic logic, TCS, algorithms
Re: Effective rate of interest

Are your numbers right? It seems like the investment lost most of its money ($700k down to $220k).
CRGreathouse is offline  
May 6th, 2013, 01:10 PM   #3
Math Team
 
Joined: Oct 2011
From: Ottawa Ontario, Canada

Posts: 14,412
Thanks: 1024

Re: Effective rate of interest

Quote:
Originally Posted by jenjenjen
Total investment cost: 700 000 money unit
No investment, put money in bank instead of investing, 20 years, at an interest of 3%, 1264277.867 mu.
Investment. My investment will give an income every year, which I put to bank and after 20 years, I should have 220941.7627 mu.
OR do you mean 220941.76 + 700000; since only income from the 700000 was banked yearly?
That would mean 1.381% compared to the 3%....so fire your investment advisor!

Could have happened if 0% was earned by investment for 19 years, then 220941.76 in 20th year.
Or 126000 in 1st year, then 0% for next 19 years (PV of 220941.76 @ 3%). Get my drift?
Denis is offline  
Reply

  My Math Forum > Science Forums > Economics

Tags
effective, interest, rate



Search tags for this page
Click on a term to search for related topics.
Thread Tools
Display Modes


Similar Threads
Thread Thread Starter Forum Replies Last Post
effective interest kelapile Economics 1 June 14th, 2012 04:57 PM
Effective interest rate compounded every two months jdlf Economics 12 July 3rd, 2011 10:00 PM
The effective interest problem Please come and help~~ devin126 Economics 0 October 8th, 2009 04:31 PM
effective interest rate. can you help me? gusty Economics 0 October 25th, 2008 06:17 AM
effective interest kelapile Applied Math 0 December 31st, 1969 04:00 PM





Copyright © 2019 My Math Forum. All rights reserved.