The closed nominal annual rate of return. Given: Initial Cost is $1000. Future cost is $2500. Interest is compounded quarterly. The time period is 5 years.

Khadija Wells 2021-08-17 Answered
The closed nominal annual rate of return.
Given: Initial Cost is $1000.
Future cost is $2500.
Interest is compounded quarterly.
The time period is 5 years.

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Expert Answer

broliY
Answered 2021-08-18 Author has 18404 answers
Calculation:
Write the expression to calculate the future value.
\(\displaystyle{F}={P}{\left({1}+{i}\right)}^{{{n}}}\) .......(I)
Here, the future value is F, the present value is P, the rate of interest is i and the time period is n.
Substitute $1000 for P, $2500 for F and 20 for n in Equation (I).
\(\displaystyle\${2500}=\${1000}{\left({1}+{i}\right)}^{{{20}}}\)
\(\displaystyle{i}={\left({2.5}\right)}^{{{\frac{{{1}}}{{{20}}}}-{1}}}\)
\(\displaystyle{i}={0.0468}\times{100}\%\)
\(\displaystyle{i}\approx{4.7}\%\)
Conclusion:
Thus, the correct answer is option (b) \(\displaystyle{4.7}\%\).
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