Question

A National Solidarity Bond offers A 5 year bond offering a gross return of 15% Calculate the AER for this investment. (Give your answer to two decimal places, no need for the percent or € sign in your answer)

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Hermann

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The AER (Annual Equivalent Rate) is a standardized measure used to compare the return on investment across different time periods. It accounts for compounding interest and allows for easier comparison between investment options.
To calculate the AER for the National Solidarity Bond with a gross return of 15% over a 5-year period, we can use the following formula:
AER = (1 + \frac{r}{n})^n - 1
Where:
r = nominal interest rate (15% in this case)
n = number of compounding periods per year (typically 1 for annual compounding)
Substituting the values into the formula:
AER = (1 + \frac{0.15}{1})^1 - 1
Simplifying the calculation:
AER = (1 + 0.15) - 1
AER = 1.15 - 1
AER = 0.15

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