What is an annual interest rate

Specialist literatureÂ The evaluation of residential rentsÂ B1 Basic knowledge of rent applicationÂ 2 Fundamentals of financial mathematicsÂ

What is my final capital after 5 years if I invest € 1,000 initial capital at 6% interest?

â € ¢ Formula Kn = K0 Ã— qn

where q = 1 + i (interest factor)

p = (nominal) interest rate, e.g. 6%

i = (nominal) annual interest rate in decimal notation, e.g. 0.06

Kn = (Final) capital after term n

K0 = Initial capital at time 0

n = running time

â € ¢ Application of formula K5 = 1,000, â € “â‚¬ Ã— 1.065

= 1,000, â € “â‚¬ Ã— 1.338226

K5 = 1,338.23 €

â € ¢ Step-by-step calculation per year compounding factor (q1) at 1 year = 1.061

 Initial capital Interest factor Final capital after term n Interest portion 1 year 1.000,00 â‚¬ Ã— 1.06 = € 1,060.00 € 60.00 2nd year € 1,060.00 Ã— 1.06 = € 1,123.60 63.60 € 3rd year € 1,123.00 Ã— 1.06 = 1,191.01 â‚¬ € 67.40 4th year € 1,191.02 Ã— 1.06 = 1,262.48 â‚¬ 71.47 â‚¬ 5th year € 1,262.48 Ã— 1.06 = 1.338,23 â‚¬ € 75.75