An investor can invest money with a particular bank and earn a stated interest rate of...
An investor can invest money with a particular bank and earn a stated interest rate of 8.80%; however interest will be compounded quarterly. What are the nominal, periodic and effective interest rates for this investment opportunity?
Nominal Rate-
Periodic Rate-
Effective Annual Rate-
Homework Answers
Stated Interest Rate = 8.80% compounded quarterly
Nominal Rate = 8.80%
Periodic Rate = 8.80% / 4
Periodic Rate = 2.20%
Effective Annual Rate = (1 + Periodic Rate)^4 - 1
Effective Annual Rate = (1 + 0.022)^4 - 1
Effective Annual Rate = 1.0909 - 1
Effective Annual Rate = 0.0909 or 9.09%
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