Question

The annual maintenance cost of a monument in the state capital is estimated to be $4850. A perpetual i fund of $100,000 is set up to pay for this maintenance expenditure. Determine the interest rate this fund earns if the interest is compounded quarterly

Answer 1

Answer:

4.76%

Explanation:

P[(1+i/4)^4 - 1] = A

$100,000*P[(1+i/4)^4 - 1] = $4,850

[(1+i/4)^4 - 1] = $4,850/$100,000

[(1+i/4)^4 - 1] = 0.0485

(1+i/4)^4 = 0.0485 + 1

(1+i/4)^4 = 1.0485

(1+i/4) = 1.0485^(1/4)

(1+i/4) = 1.01191

i/4 = 1.01191 - 1

i/4 = 0.01191

i = 0.01191*4

i = 0.04764

i = 4.76%