2010/3/16 Julien Martin
<address@hidden>
Hello,
I am trying to determine an interest rate by solving the following equation:
fsolve(@(r) 200*(1+r)^(4)+300*(1+r)^(3)+400*(1+r)^(2)+500*(1+r)^(1)-1000,0)
What really puzzles me is that Octave will not give me a solution that makes sense: it gives me a negative interest rate!!
In plain English, the problem is as follows: one invests 1000$ at year 1, and receives 200 at year 2, 300 at year 3, 400 at year 4 and 500 at year 5.
I have to find out the interest rate of this investment...
Can anyone please help?
Thanks in advance,
Julien.
There is no single interest-rate.
You can only get those payoffs if the interest-rate varies every year.
This calculates the _average_ rate for 2 years, 3 years, .... :
octave:11> fsolve(@(r) (1000*(1+r)^(1))-(1000+200),0)
ans = 0.20000
octave:12> fsolve(@(r) (1000*(1+r)^(2))-(1000+200+300),0)
ans = 0.22474
octave:13> fsolve(@(r) (1000*(1+r)^(3))-(1000+200+300+400),0)
ans = 0.23856
octave:14> fsolve(@(r) (1000*(1+r)^(4))-(1000+200+300+400+500),0)
ans = 0.24467
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