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Homework answers / question archive /  Edmund deposited $2,000 twice in his bank account on 1st January 2011 and on 1st January 2014

 Edmund deposited $2,000 twice in his bank account on 1st January 2011 and on 1st January 2014

Finance

 Edmund deposited $2,000 twice in his bank account on 1st January 2011 and on 1st January 2014. If there were no other deposits or withdrawals and the amount of money in the account at the end of 319 Decemeber 2015 is $7,100, find the effective rate of interest that Edmund earned.

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Future value = Deposit in 2011 * (1 + Effective interest rate)no of periods + Deposit in 2014 * (1 + Effective interest rate)no of periods

7100 = $2000 * (1 + Effective interest rate)5 + $2000 * (1 + Effective interest rate)2

Using Texas Instruments BA 2 plus calculator

Press CF, CFo = -2000 Press ENTER

C01 = 0, Press ENTER, F01 = 1 Press ENTER

C02 = 0, Press ENTER, F02 = 1 Press ENTER

C03 = -2000, Press ENTER, F03 = 1 Press ENTER

C04 = 0, Press ENTER, F04 = 1 Press ENTER

C05 = 7100, Press ENTER, F05 = 1 Press ENTER

Press IRR, CPT --> IRR = 16.9030

Effective Interest rate = 16.9030%

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