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RE: Help resolving the following equation...


From: Allen.Windhorn
Subject: RE: Help resolving the following equation...
Date: Tue, 16 Mar 2010 08:51:56 -0500

Julien,

From: Julien Martin [mailto:address@hidden 

> 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...

Octave is giving the correct answer to the formula.  (You can see
that the amounts taken out add up to more than $1000, so you have
to multiply them by something less than one to make it come out.)
Hint: the interest is on the amount put in, not the amount taken 
out.  Also, the $200 earns interest for one year, not four, etc..

Hope this is helpful.

Regards,
Allen



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