fifteen years ago, you deposited $12500 into an investment fund. five years ago, you added an additional $20000 to that account. you earned 8%compounded semi annually for the first ten years, and 6.5, compounded annually for the last five years. what is the effective annual interest. rate EAR YOU would get for your investment the first 10 years? How much do you have in your account today? if you wish to have $85000 now.how much should you have invested in 15 years ago?
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Effective annual rate = 8.16%
Explanation:
An effective annual rate is the modified interest rate from the nominal rate that represents the equivalent rate if annual compound interests are computed.
Amount deposited is $12,500 (15 years ago)
Interest rate 8% for first 10 years
Interest rate for next five years is 6.5%
Number of years are 15
Additional amount of $20,000 is deposited 5 years ago.
Effective annual rate = (1 + Nominal rate/ Number of compounding in a year)^(number of compounding in a year - 1
= (1 + 0.08/2)² - 1
= 1.0816 - 1
= 0.0816
= 8.16%
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