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Calculate the equivalent periodic interest rate per payment interval for the following annuity Semi-annual payments earning 6% compounded monthly

Calculate the equivalent periodic interest rate per payment interval for the following annuity Semi-annual payments earning 6% compounded monthly 

O 5.00000% 

O 3.03775% 

O 3.08771% 

0 2.97233% 

O 0.83161%

Solutions

Expert Solution

APR =6%   

Compounding Monthly 

 

Payment Period = 6 month 

 

Hence, six monthly interest rate would be

 

Effective interest rate = (1+r/n)m

n= number of times compounding in a year 

r = annual rate  

m = period for which effective interest rate to be calculated

 

Effective interest rate = (1+0.06/12)6 -1  

                                       =1.0303775 -1  

                                       = 3.03775%

 

Equivalent periodic interest rate is 3.30775%.

Equivalent periodic interest rate is 3.30775%.

Umair answered 2 years ago
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