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#1
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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? |
#2
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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? |
#3
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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. |
#4
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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? |
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