Question

Show all work. Label and clearly explain your answer. This is very important. 1) You must explain how you arrived at your answer in order to get full credit. 2) If you do show your work, and your answer is wrong, you can still earn a substantial amount of credit depending on how serious the error is. 3) If your answer is wrong, and you don't show your work, you will get a zero. a. Convert 3% simple monthly rate into simple annual rate. b. Convert 6% simple annual rate into annual rate, compounded monthly. c. Convert 9% annual rate compounded monthly into annual rate, compounded daily. d. Convert 12% annual rate, compounded weekly into simple annual rate. e. Convert 15% simple annual rate into annual rate, compounded semi-annually.

Answer 1

(a): Simple monthly rate= 3%. Equivalent simple annual rate= 3%*12= 36%

(b): Simple annual rate (i) =6%

Equivalent annual rate compounded monthly= [(1+i/12)^12]-1 = (1.005^12)-1 = 1.061678-1 = 6.1678%

(c): Annual rate compounded monthly=9%

Equivalent annual rate compounded daily= 8.9675% as follows:

(d): Annual rate compounded weekly= 12%

Equivalent simple annual rate (Effective Annual Rate)= 12.7341% as follows:

(e): Simple annual rate (i) = 15%

Equivalent annual rate compounded semi annually= [(1+i/2)^2]-1 = [(1+7.5%)^2]-1

=(1.075^2)-1 = 1.155625 - 1 = 15.5625%