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16 November, 16:12

Don Krump wants to triple his investment in 6 years. An investment firm offers him an attractive interest rate. If the interest is compounded monthly, determine the nominal interest for this investment.

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  1. 16 November, 18:16
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    Complete question:

    Don Krump wants to triple his investment in 6 years. An investment firm offers him an attractive interest rate. If the interest is compounded monthly, determine the nominal interest for this investment.

    A. 20.09% B. 15.76% C. 18.45% D. 16.67%

    Solution:

    If inflation is taken into consideration, the nominal rate applies to the interest rate. Nominal may also apply, without consideration of any costs, to an announced or declared interest rate of a mortgage.

    So, the nominal interest for this investment:

    3P = P (1 + i) ^ 72

    (1 + i) = 1.015375509

    i = 0.015375509 per month

    Nominal interest per year = 0.015375509 * 12

    = 0.1845 or 18.45%
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