I'm confused - Savings certs 17th issue

H

Horatio

Registered User
Messages
807
Investors will earn 21% TAX FREE over a 5 year 6 month period. This is
equivalent to an average interest rate of 3.53% per annum if the investment
is held for the full term. Where Savings Certificates are encashed before the​
elapse of 5 years and 6 months, the average annual rate of interest will be lower

See the underlined above. This is an extract from the An Post Flyer for this product.

My confusion:

*My calculation 21% divided by 5.5 years = 3.81%PA
*Their calculation: This is
equivalent to an average interest rate of 3.53% per annum

Can anyone explain this difference to me?​
 
Compounding. After the first year your principle is 103.53%. The interest in the second year is 3.53% of 103.53%, which is more than 3.53% of the original 100%. And so on.
 
The maths is 1.035x1.035x1.035x1.035x1.035x(1.035^1/2)=1.021
the last bit being a half year's interest
 
MugsGame said:
Compounding. After the first year your principle is 103.53%. The interest in the second year is 3.53% of 103.53%, which is more than 3.53% of the original 100%. And so on.
Click to expand...

Oh dear - back to school I go! Thanks Guy's
 
You must log in or register to reply here.
Menu
Log in
Register