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Unit 3 compound interest further topics 1

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Topics Section 9.4: Calculating Equivalent Payments Section 9.5: Calculating Periodic Interest Rate (i) and Nominal Interest Rate (j) Section 9.6: Calculating Effective Interest Rate (f) Section 9.7: Calculating Number of Compounding Periods (n) and Time Period (t) Section 9.5 Periodic Interest Rate (i) We can calculate the periodic interest rate ‘i’ by rearranging the Future Value formula. Dividing by ‘PV’ on both sides FV = PV (1+ i ) n 1 n (1+ i ) = FV PV Slide: 3 - Taking the nth rootIsolating on both ‘i’ sides Section 9.5 Nominal Interest Rate (j) We can calculate the nominal interest rate ‘j’ by rearranging the Periodic Interest Rate. j j×= i m=× i m Slide: 4 Section 9.5 At what rate compounded monthly will an investment of $8600 grow to $15,000 in 8 years? N P/Y C/Y PV PMT FV I/Y 12 × 8 = 96 12 0 8 years PV = $8600 FV = $15,000 12 – 8600 0 15,000 ? I/Y = 6.973785…% = 6.97% The investment will grow to $15,000 at 6.97% compounded monthly. Section 9.5 The interest on a 5-year investment bond is $3594.66. If the bond was purchased for $6000, what is the nominal interest rate of the bond if interest is compounded quarterly? a. 10.38% b. 9.5% c. 10.11% d. 7.13% 9 7 7 a. b. 7 c. d. Section 9.5 The interest on a 5-year investment bond is $3594.66. If the bond was purchased for $6000, what is the nominal interest rate of the bond if interest is compounded quarterly? N P/Y C/Y PV PMT FV I/Y 4 × 5 = 20 4 4 – 60 ...
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