The amount of Principal is $3000, and the annual interest rate is 12%. Answer the following...
The amount of Principal is $3000, and the annual interest rate is 12%. Answer the following questions.
(a) What is the effective annual interest rate if compounded monthly? Calculate Total payback after 2 years in a lump sum.
(b) What is the simple annual interest rate to generate the same amount of payback as (a) in two years with the principal of $3000?
Homework Answers
a) effective annual interest rate = (1 + nominal interest rate/12)12 - 1
effective annual interest rate = 1.0112 - 1 = 12.6825%
total payback = 3000 x (1 + 12.6825%)2 = $ 3809.2
b)
Payback = $ 3809.2
time = 2 years
simple annual rate = r
3000 + 3000 x r x 2/100 = 3809.2
r = 13.487%
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