Formulas

Question 1

Annual Equivalent Rate

Used to compare accounts between different providers with different terms

Answer 1

AER = ((1 + r/n)^n - 1) x 100

r is the nominal rate expressed as a percentage
n is the number of interest payments in a year.

Question 2

future value

This lets us calculate how much a capital amount would be worth if it received a rate of interest at a certain rate over a certain period.

Answer 2

FV = CV (1 + r)^n

FV is future value
CV is current value
r is the nominal rate expressed as a percentage
n is the number of interest payments in a year.

Question 3

Real return

Used to calculate the effects of inflation on a cash investment

Answer 3

Real return = nominal return - inflation