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Pulse
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A pension fund is making an investment of $100,000 today and expects to receive $1500 at the end of each month for the next five years.At the end of the fifth year, the capital investment of 100000 will be returned? What is the investment yield? l used excel and got 18%,but when using a investment yield calculator l get 13.% Can someone help?
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Cool
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Firts of all, $1500 times sixty months (5 * 12) will get you an extra $90,000. At the end of the fifth year only $90,000 will be returned, NOT the full 100,000!
You're getting a 1.5% interest increase each month, or a 18% annual increase.
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electrode
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Since the entire 100k will be returned at the end of the period, the '5 years' is irrelevant..
If u r going to get the entire 100k back, then 100k has to generate 1,500 in one month, & has to do this every month for as long as u care to leave it invested.
Simple yield is thus 1,500/100,000 * 12 = 18%.
To calculate AER (Annual Equivalent Rate) u have to assume that the 1500 is not withdrawn ie. that after the first month, the 1500 will be added to the investment for the second month & so on for the second etc.
After 12 months u will have 119,561.82 in the account (rather than 118,000)
This gives an AER of 19.56%
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Melody
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