1500 = 1000*(1 + r)^4 ... and solve for r ... with logs or refined guessing (let excl do the math)
Bernie Madoff - ha ha. that is funny.
500 is 1/2 of 1000, so that is 50%, but that is for four year. Therefore, 50/4===12.5
12.5%
The effective interest rate, effective annual interest rate, annual equivalent rate (AER) or simply effective rate is the interest rate on a loan or financial product restated from the nominal interest rate as an interest rate with annual compound interest payable in arrears.
i = (FV / PV)^(1 / n) - 1
i = (1500/1000)^(1/4) - 1
i =10.67%
The Excel rate function will also give the same answer
=RATE(4,,1000,-1500) = 10.67%
Bernie Madoff invites you to invest $1,000 in his fund now and be guaranteed at least $1,500 in 4 years. What is the effective rate that Mr. Madoff is promising you?
