1. Your bank is offering you an account that will pay 22% interest (an effective two-year...
1. Your bank is offering you an account that will pay 22% interest (an effective two-year rate) in total for a two-year deposit. Determine the equivalent discount rate for the following periods:
a. Six months
b. One year
c. One month
(Note: Be careful not to round any intermediate steps less than six decimal places.)
Homework Answers
ANSWER:
The equivalent discount rate is computed as shown below:
a. ( 1 + 0.22 )1/4 -1
= 5.096913 % Approximately
b. ( 1 + 0.22 )1/2 - 1
= 10.453610 % Approximately
c. ( 1 + 0.22 )1/24 - 1
= 0.831987% Approximately
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