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  • Question 3-Final Exam

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    Linda Vo
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    The document discusses how to calculate effective interest on funds over a period of time. It provides information on a £2000 fund with an annual interest rate of 3% compounded quarterly over 4 years. To determine the effective interest rate, the quarterly interest rate of 0.75% is applied over the 16 quarters to calculate how interest compounds over time on the principal value plus accumulated interest.

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    The document discusses how to calculate effective interest on funds over a period of time. It provides information on a £2000 fund with an annual interest rate of 3% compounded quarterly over 4 years. To determine the effective interest rate, the quarterly interest rate of 0.75% is applied over the 16 quarters to calculate how interest compounds over time on the principal value plus accumulated interest.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    8 views1 page

    Question 3-Final Exam

    Uploaded by

    Linda Vo
    The document discusses how to calculate effective interest on funds over a period of time. It provides information on a £2000 fund with an annual interest rate of 3% compounded quarterly over 4 years. To determine the effective interest rate, the quarterly interest rate of 0.75% is applied over the 16 quarters to calculate how interest compounds over time on the principal value plus accumulated interest.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    of 1

    QUESTION 3

    STEP 1

    The interest on the funds refers to the additional income on the principal value of
    funds. In the fund management, the interest plays an important role in
    accumulation of funds. It can determine through simple interest and
    compounding interest. In this interest system, compounding frequency has a
    significant place in the effective interest determination.

    STEP 2

    For the determination of effective interest, the information is as follows:

    Fund value: £2000

    Interest rate: 3% compounding per quarter

    Interest rate per quarter: 3%/4: 0.75% per quarter

    Period: 4 years or 16 quarters

    Solution:

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