Question

In: Finance

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%

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%.

Umair answered 1 year ago

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