Question

An investor can invest money with a particular bank and eam a stated interest rate of 15.40%; however, interest w be compounded quarterly. What are the nominal, periodic, and effective interest rates for this investment opportunity? Interest Rates Nominal rate Periodic rate Effective annual rate Rahul needs a loan and is speaking to several lending agencies about the interest rates they would charge and the terms they offer. He particularly likes his local bank because he is being offered a nominal rate of 14%. But the bank is compounding quarterly. What is the effective interest rate that Rahul would pay for the loan? O 14.935% 0 14.929% O 15.066% 14.752% Another bank is also offering favorable terms, so Rahul decides to take a loan of $10,000 from this bank. He signs the loan contract at 10% compounded daily for nine months. Based on a 365-day year, what is the total amount that Rahul owes the bank at the end of the loan's term? (Hint: To calculate the number of days, divide the number of months by 12 and multiply by 365.) $10,455.51 $10,778.88 $10,994.46 $10,563.30 O

Answer 1

Answering the first question. If you want the answer to any other question, please tell me specifically.

The nominal interest rate is the stated interest rate.

So nominal interest rate = 15.40 %

The periodic interest rate is the nominal interest rate divided by the compounding periods in a year.

So periodic interest rate = 15.40/4 = 3.85%

The effective annual interest rate will be calculated by the formula:

EAR = [(1+i/n]ⁿ - 1

= (1+(0.154/4))⁴ - 1 = (1.0385)⁴ - 1

= 1.1631 - 1

= 0.1631 = 16.31 %