rate of return on investment per annum
 

Hi,

I have gone thru the forum discusiions on simiar topics, but couldnt
understand much. appreciate your help with this query

1) i invest $100000 for 3 years one month today with reinvesment of interest
earned quaterly at the rate of 7.00% per annum. What wil be ultimate amount
at the end of the tenure?

2) I invest $100000 today in a scheme which will give me 250000 after 2
years. what is the rate of return here?

rate of return on investment per annum
 

Ram wrote:
2) I invest $100000 today in a scheme which will give me
250000 after 2 years. what is the rate of return here?

Let's take the easy one first.... If the "investment" were in the
money market, the answer would depend on the frequency of computing and
compounding interest. But assuming that you are talking about an
appreciated asset (e.g. stock), the answer would be:

=rate(2, 0, -100000, 250000)

which is 58.11%. On the other hand, if you were talking about an
investment in the money market, which typically compounds daily (in the
US), the answer would be:

=365*rate(2*365, 0, -100000, 250000)

which is 45.84%. Money market rates are often expressed in terms of
the (nominal annual) interest rate; hence, the daily rate is multiplied
by 365. If you wanted the APY (annual percentage yield), the answer
would be:

=fv(rate(2*365, 0, -100000, 250000), 365, 0, -1) - 1

which is 58.11%, the same as the first answer, no surprisingly.

1) i invest $100000 for 3 years one month today with reinvesment of interest
earned quaterly at the rate of 7.00% per annum. What wil be ultimate amount
at the end of the tenure?

This is more difficult to answer because of ambiguous terminology. For
example, I do not know what you mean by "for 3 years one month today".
Do you mean: 3 years and one month? That seems like an odd
specification for an investment that compounds
quarterly.

Also, is 7% the (nominal) interest rate? Or is it the annual
percentage yield; that is, the effect of compounding quarterly at some
rate (which we can compute)?

Finally, even if interest is reinvested quarterly, it could be computed
daily or monthly or some other frequency. And if it is computed more
often than quarterly, in the US, there is the option of compounding at
that higher frequency or not. The phrase "reinvested quarterly" is
ambiguous; some financial instititutions "pay to the account"
quarterly, but
they still compound the interest between payments. (But admittedly,
normally I would expect the phrase "reinvested quarterly" to mean
computed and compound quarterly.)

If you can address all those questions, I would be more confident in an
answer. Assuming that you mean $100000 for (just) 3 years, with
interest computed and compounded quarterly at a nominal rate of 7%, the
answer might be:

=fv(7%/4, 4*3, 0, -100000)

which is $123,144.

Does that help?

rate of return on investment per annum
 

PS....

I wrote:
Assuming that you mean $100000 for (just) 3 years, with
interest computed and compounded quarterly at a nominal rate of 7%, the
answer might be:
=fv(7%/4, 4*3, 0, -100000)
which is $123,144.

And just in case you truly meant "3 years and one month" with interest
computed and compounded quarterly at a nominal rate of 7%, interest for
the "odd period" (less than a quarter) is usually prorated. So the
answer might be written:

=fv(7%/12, 1, 0, -fv(7%/4, 4*3, 0, -100000))

or more simply:

=fv(7%/4, 4*3, 0, -100000) * (1 + 7%/12)

which is $123,862.

rate of return on investment per annum
 

I'm not a financial guy, but I calculate about $123 143.90 for the first
scenario.
I would say the second scenario is just that - a scheme. Most likely in 2
years, you end up with zilch!

"Ram" wrote:

Hi,

I have gone thru the forum discusiions on simiar topics, but couldnt
understand much. appreciate your help with this query

1) i invest $100000 for 3 years one month today with reinvesment of interest
earned quaterly at the rate of 7.00% per annum. What wil be ultimate amount
at the end of the tenure?

2) I invest $100000 today in a scheme which will give me 250000 after 2
years. what is the rate of return here?