a payment on a loan is made quarterly at a nominal rate of 9% per year...

a payment on a loan is made quarterly at a nominal rate of 9% per year compunded monethly. What is the effective semi-annual interest rate for this loan.

Expert Solution

9% p.a. Interest rate compounded monthly = .75% interest monthly

We want to find out effective semi annual rate knowing that 0.75% interest rate monthly.

According to relation of rate equivalence , the follwing equality must be satisfied:

( 1 + monthly interest )^ 12 = ( 1 + semi annual interest )^2

= (1.0075)^12 = ( 1 + semi annual interest )^2

= 1.093807 = ( 1 + semi annual interest )^2 = Effective semi annual interest = 4.585%

Rahul Sunny answered 2 years ago

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