What is an annual interest rate

Specialist literature The evaluation of residential rents B1 Basic knowledge of rent application 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 × 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 € “€ × 1.065

= 1,000, â € “€ × 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 €

× 1.06

= € 1,060.00

€ 60.00

2nd year € 1,060.00

× 1.06

= € 1,123.60

63.60 €

3rd year € 1,123.00

× 1.06

= 1,191.01 €

€ 67.40

4th year € 1,191.02

× 1.06

= 1,262.48 €

71.47 €

5th year € 1,262.48

× 1.06

= 1.338,23 €

€ 75.75