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Help on this question Maths For Actuaries: Theory of Interest rates?
A sum of £100 is accumulated at a discount rate of 7.5%pa. convertible quarterly for one year and then at a nominal rate of interest of 7.5%pa convertible quarterly for one year.Which one of the following gives the accumulated amount after 2 years.
A.£100.00
B.£116.02
C.£116.19
D.£116.35
the answer is C but i been trying to work it out the answer aint cumin out help??
1 Answer
- Anonymous1 decade agoFavorite Answer
The value is calculated on quarterly rests.You take the sum of £100 and multiply it by 1.075 to achieve the annual interest earned but divide the interest earned by 4 to achieve the quartely value.Add the quartely value to the capital then do the next calculation in the same way.do this 8 times and you will have the two year value.Eg £100 x 1.075 equals £107.50,but that is the annual value,divide7.50 by four 1.875 so you get 101.875 that is the value at 3 months repeat the calculation by quarters until you get 2 years.Hard to explain on here.The answer is B.