A very optimistic hedge fund investor expects his single-deposit investment to triple in value in 5 years. (a) What is the required effective monthly rate, compounded continuously? (b) What is the corresponding effective annual rate needed?
What will be an ideal response?
(a) Set up F/P equation in months.
3P = P(1 + i) 60
3.000 = (1 + i) 60
1.01848 = 1 + i
i = 1.848% per month (effective)
(b) (1 + 0.01848) 12 -1 = 0.24575 (24.575%)
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What will be an ideal response?
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