Effective Rate of Interest

It can be computed for irregular / a series of cash flows also

Sriram Somayajula

Admin

27-Aug-20 16:26

Can you please explain the effective rate calculation of the following: Annual investment 1 lakh For a period of 5 years (1 lakhÃ?5=5 lakh) @ 12% p.a. By using the formula [(1+r)^n-1]Ã?100 I'm getting an absurd answer... Or there is a different formula for series of cash flow?

Thread Starter

Deepak Gupta

CA Inter

★ 1K+

27-Aug-20 16:43

In this case if each year the cash flow is 1 lac and interest rate is 12% - EAR is also 12%. Can you share screenshot of question from the material where you are looking at

Sriram Somayajula

Admin

27-Aug-20 16:50

There is no specific question. Actually i was watching time value of money module today and after future value of annuity concept, this came to my mind... So, I quoted the annuity example in the video for EAIR... I think I was trying to calculate the effective rate after 5 years whereas it is to be calculated annually... so was getting a weird return...

Thread Starter

Deepak Gupta

CA Inter

★ 1K+

27-Aug-20 17:26

Ok

Sriram Somayajula

Admin

27-Aug-20 17:31