Why is the solution done in months instead of years? Why do I not get to the same answer when I work in years with an effective interest rate of 12.6825% per annum?
Because it's also a valid method and has a nice 1% PCM interest rate to use. You'd have to give me your working before I can answer why you haven't got the right answer with the correct annual rate of interest.
Thanks John. Here is my working: PV = 1000a6 ̅|+ 400a4 ̅|* V^6 + 2000V^10 with i = 12.6825% = 4033.146749 + 585.0622611 + 605.9897214 = 5224.20 instead of 5487
I think I know where I made a mistake. I should've divided by i(12) = 12% and not i = 12.6825%, because the interest is converted monthly.