# Your company has decided to set up a fund for its employees with an initial payment of Rs 27,500...

## Question:

Your company has decided to set up a fund for its employees with an initial payment of Rs 27,500 compounded six-monthly over a four-year period at a six monthly interest of 3.5%.

a) Calculate the size of the fund at the end of 4 years.

b) Calculate the effective annual interest rate.

c) Show that P=A/r. for an ordinary annuity to infinity.

## Effective Annual Rate:

The effective annual rate refers to the actual interest received or paid for an investment which is a result of regular compounding for a particular period of time. Effective annual rate is also referred to as an annual equivalent rate.

## Answer and Explanation: 1

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View this answer*a) Calculation of size of the fund:*

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Chapter 7 / Lesson 6Know the definition of the effective annual rate (EAR), see the formula for calculating the effective annual rate, and explore some examples on how to calculate the effective annual rate.

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