My Math Forum Effective rate of interest

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 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!
 May 6th, 2013, 11:04 AM #2 Global Moderator     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).
May 6th, 2013, 01:10 PM   #3
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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?

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