Formula for payout & interest

[Atreyu]

I have a question of which formula works for this example:
I have the following:
Invest $650,000.00 put in money-market which compounds monthly pays
interest of 5.5%-annually. What is my 20 year earnings?Yes if all stays the
same for 20 years

 

[Mike H]

Hi,

=650000*(1+0.055/12)^12*20

Mike

 

[JoeU2004]

Invest $650,000.00 put in money-market which compounds monthly pays
interest of 5.5%-annually. What is my 20 year earnings? Yes if all stays
the
same for 20 years

Depends on whether 5.5% is an annual interest rate or annual yield. The
latter is typical in the US.

If annual interest rate:

=fv(5.5%/12, 20*12, 0, -650000)

If annual yield:

=fv(rate(12, 0, -1, 1+5.5%), 20*12, 0, -650000)

 

[JoeU2004]

=650000*(1+0.055/12)^12*20

Close. You should write 650000*(1+5.5%/12)^(12*20).

The key is the parentheses around 12*20. Compare with:

=fv(5.5%/12, 20*12, 0, -650000)

But as I noted in another posting in this thread, that assumes that 5.5% is
the annual interest rate, not the annual yield.

In the US, it is common to specify the latter.

Even though the OP wrote "pays interest of 5.5", many investors confuse the
two. I would not take it for granted.


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