A company that manufactures general purpose transducers inve

A company that manufactures general purpose transducers invested $ 2 million four years ago in high yield junk bonds . if the bonds are now worth $2.8 million , what rate of return per year did the company make on the basis of compound interest             ( use RATE function of excel)

USE EXCEL SPREADSHEET AND FUNCTIONS TO SOLVE THE PROBLEM (subject engineering economy)

Solution

1. Using Time Value of Money, where FV is 2.8, PV is 2.0, No of year N is 4, Rate earned is 8.8% per year, compounded annually.

2. With an investment of $X, a FV of $3X, R of 20%, compounded annually, it will take 6 years to triple in value.

3. PV of X, FV of 2X, N of 4, Rate required is 18.9%, compounded annually.

Unless otherwise stated, interest rates are always compounded annually.

Use #2 above as an example - Invest 100 at 20%. After one yr, you have 120, after 2 yrs, 144, after 3 yrs, 172.8, etc. After 6 yrs, you\'ll have 300.

To solve the other problems here, you need to understand the concept of TVM.

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