a) Given effective quarterly interest rate equal to 3.25%, findthe equivalent monthly interest rate.Ans:...

a) Given effective quarterly interest rate equal to 3.25%, find the equivalent monthly interest rate.

Ans: 1.078%. Show all work.

b)Given effective annual discount rate equal to 9.2%, find the nominal interest rate compounded quarterly.

Solutions

Expert Solution

a) Effective monthly interest rate = (1 + effective quarterly interest rate)^(1/4) - 1

Effective monthly interest rate = (1 + 0.0325)^(1/3) - 1

Effective monthly interest rate = 0.0107180464

Effective monthly interest rate = 1.07180464%

Effective monthly interest rate = 1.072%

b) Effective quarterly rate = (1 + effective annual rate)^(3/12) - 1

Effective quarterly rate = (1 + 0.092)^(1/4) - 1

Effective quarterly rate = 0.02224656429

The nominal interest rate compounded quarterly = 0.02224656429 * 4

The nominal interest rate compounded quarterly = 0.08898625716

The nominal interest rate compounded quarterly = 8.898625716%

The nominal interest rate compounded quarterly = 8.90%

jeff jeffy answered 2 years ago

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