Homework Answers
(i) Time period = 1 year
(ii) Compounding period = 1 month
(iii) This is a nominal (monthly) interest rate.
(iv) Nominal quarterly rate = Nominal monthly rate x Number of months in a quarter = 2% x 3 = 6%
(v) Nominal annual rate = Nominal monthly rate x Number of months in a year = 2% x 12 = 24%
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2. If the interest rate is 2% per month, what is the time period (TP)? what is the compounding Z ...
1) For Nominal Interest Rate expression select one of the following: A. Interest period≥ Compounding period...
1) For Nominal Interest Rate expression select one of the following: A. Interest period≥ Compounding period B. Interest period = Compounding period C. Interest period < Compounding period D. Compounding period≥ Interest period. 2)If the nominal interest rate is 10% per year compounded weekly, then what is “z% per half year compounded weekly”? A. 10% B. 2% C. 5% D. 6%
a. If you are told that your effective annual interest rate is 10%, what is the nominal...
a. If you are told that your effective annual interest rate is 10%, what is the nominal interest rate compounded quarterly? b. What is the effective annual interest rate if the nominal interest rate is 7%, and the frequency of compounding is once a month? c. How much time would it take for your principal to quadruple if the effective annual interest rate is 5%, and the frequency of compounding is once a year?
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11. Nonannual compounding period Aa Aa The number of compounding periods in one year is called compounding frequency. The compounding frequency affects both the present and future values of cash flows. An investor can invest money with a particular bank and earn a stated interest rate of 13.20%; however, interest will 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 13.20% 3.30% 3.66% Rahul...
3. Nonannual compounding period The number of compounding periods in one year is called compoundi...
3. Nonannual compounding period The number of compounding periods in one year is called compounding frequency. The compounding frequency affects both the present and future values of cash flows An investor can invest money with a particular bank and earn a stated interest rate of 13.20%; however, interest will 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 You want to invest $19,000 and...
Time Value of Money: Comparing Interest Rates Different compounding periods, are used for different types of...
Time Value of Money: Comparing Interest Rates Different compounding periods, are used for different types of investments. In order to properly compare Investments or loans with different compounding periods, we need to put them on a common basis. In order to do this, you need to understand the difference between the nominal interest rate (INOM) and the effective annual rate (EAR). The Select interest rate is quoted by borrowers and lenders, and it is also called the annual percentage rate...
Ch 05 Assignment- Time Value of Money 11. Nonannual compounding period The number of compounding periods...
Ch 05 Assignment- Time Value of Money 11. Nonannual compounding period The number of compounding periods in one year is called compounding frequency. The compounding frequency affects both the presen values of cash flows. t and fut An investor can invest money with a particular bank and earn a stated interest rate of 4.40%; however, interest will be compounded quarterly. are the nominal, periodic, and effective interest rates for this investment opportunity? Interest Rates Nominal rate Periodic rate Effective annual...
A credit card issued through Frost Bank has a nominal interest rate of 3.5% per quarter,...
A credit card issued through Frost Bank has a nominal interest rate of 3.5% per quarter, and the compounding period is quarterly. Calculate the effective interest rate on a (a) semiannual basis, and (b) annual basis
For nominal interest rate of compounding is continuous. Show your solution 3. %, effective annual interest...
For nominal interest rate of compounding is continuous. Show your solution 3. %, effective annual interest rate will be 12% when 4. Under what conditions APR will be different from EAR? L. Shark is designing a new account that pays interest quarterly. They wish to pay effectively, a 16% per year on this account. L. Shark desires to advertise the annual percentage rate on this new account (and not the effective rate, since their competitors state their interest on an...
For nominal interest rate of compounding is continuous. Show your solution 3. %, effective annual interest...
For nominal interest rate of compounding is continuous. Show your solution 3. %, effective annual interest rate will be 12% when 4. Under what conditions APR will be different from EAR? L. Shark is designing a new account that pays interest quarterly. They wish to pay effectively, a 16% per year on this account. L. Shark desires to advertise the annual percentage rate on this new account (and not the effective rate, since their competitors state their interest on an...
Bank One is offering a loan at a 9% nominal rate of interest, with quarterly compounding....
Bank One is offering a loan at a 9% nominal rate of interest, with quarterly compounding. Bank Two is offering an 8.7% nominal rate of interest with monthly compounding. What is the effective rate of interest for each of these loans? Which loan provides a better return?
11. Nonannual compounding period Aa Aa The number of compounding periods in one year is called compounding frequency. The compounding frequency affects both the present and future values of cash flows. An investor can invest money with a particular bank and earn a stated interest rate of 13.20%; however, interest will 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 13.20% 3.30% 3.66% Rahul...
3. Nonannual compounding period The number of compounding periods in one year is called compounding frequency. The compounding frequency affects both the present and future values of cash flows An investor can invest money with a particular bank and earn a stated interest rate of 13.20%; however, interest will 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 You want to invest $19,000 and...
Time Value of Money: Comparing Interest Rates Different compounding periods, are used for different types of investments. In order to properly compare Investments or loans with different compounding periods, we need to put them on a common basis. In order to do this, you need to understand the difference between the nominal interest rate (INOM) and the effective annual rate (EAR). The Select interest rate is quoted by borrowers and lenders, and it is also called the annual percentage rate...
Ch 05 Assignment- Time Value of Money 11. Nonannual compounding period The number of compounding periods in one year is called compounding frequency. The compounding frequency affects both the presen values of cash flows. t and fut An investor can invest money with a particular bank and earn a stated interest rate of 4.40%; however, interest will be compounded quarterly. are the nominal, periodic, and effective interest rates for this investment opportunity? Interest Rates Nominal rate Periodic rate Effective annual...
For nominal interest rate of compounding is continuous. Show your solution 3. %, effective annual interest rate will be 12% when 4. Under what conditions APR will be different from EAR? L. Shark is designing a new account that pays interest quarterly. They wish to pay effectively, a 16% per year on this account. L. Shark desires to advertise the annual percentage rate on this new account (and not the effective rate, since their competitors state their interest on an...
For nominal interest rate of compounding is continuous. Show your solution 3. %, effective annual interest rate will be 12% when 4. Under what conditions APR will be different from EAR? L. Shark is designing a new account that pays interest quarterly. They wish to pay effectively, a 16% per year on this account. L. Shark desires to advertise the annual percentage rate on this new account (and not the effective rate, since their competitors state their interest on an...
Bank One is offering a loan at a 9% nominal rate of interest, with quarterly compounding. Bank Two is offering an 8.7% nominal rate of interest with monthly compounding. What is the effective rate of interest for each of these loans? Which loan provides a better return?
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