
Economics Economics Forum  Financial Mathematics, Econometrics, Operations Research, Mathematical Finance, Computational Finance 
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May 15th, 2014, 02:12 PM  #11 
Math Team Joined: Oct 2011 From: Ottawa Ontario, Canada Posts: 14,597 Thanks: 1038 
IF we're to look at this as an investment of 20,000 now (time 0) which went bad(!) by creating a loss of 26,000 1 year later, then fortunately a gain of 13,000 2 years later, then we can calculate a rate: 26000 / (1 + i) + 13000 / (1 + i)^2 = 20000 Simplifies to a quadratic: 20(1 + i)^2 + 26(1 + i)  13 = 0 Solve to get 1 + i = .3855 So i = .3855  1 = .6145 (negative, as expected...) 

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