How do you find the annual effective rate of interest?(adsbygoogle = window.adsbygoogle || []).push({});

The question reads: You lend a freind $15 000 to be amortized by semiannual payments for 8 years, with interest at j2 = 9%. You deposit each payment in an account paying J12 = 7%. What annual effective rate of interest have you earned over the entire 8-year period?

Ans = 8.17%

Hmmm... i have absolutly no idea how to get the annuale effective rate of interest.

My TA showed, (in another question) that its something like (1 + i)^n = 1 + r

and solve for r?

Please help somebody

Thanks

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# Financial Mathematics

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