Question

Calculate the effective annual interest rate of the following savings schemes:

-12% annual interest compounded monthly.

-18% annual interest compounded weekly. -

Now calculate ie for the following data:

-14% annual interest compounded monthly. Also semi annually.

-10% annual interest compounded weekly. Also semi annually.

-13% annual interest compounded weekly. Also for the next 2 years.

-9% annual interest compounded semi annually. Now for the next 2 years.

Answer 1

Solution:

At 12% interest:

EAR monthly = [(1+(r/n))^n -1]

EAR monthly = [(1+(12%/12))^12 -1]

EAR monthly = 0.126825 OR 12.68%

At 18% interest:

EAR weekly = [(1+(r/n))^n -1]

EAR weekly = [(1+(12%/(365/7)))^(365/7) -1]

EAR weekly = 0.127341 OR 12.73%

At 14% interest:

EAR monthly = [(1+(r/n))^n -1]

EAR monthly = [(1+(14%/12))^12 -1]

EAR monthly = 0.149342 OR 14.93%

EAR semiannually = [(1+(r/n))^n -1]

EAR semiannually = [(1+(14%/2))^ 2 -1]

EAR semiannually = 0.144900 OR 14.49%

At 10% interest:

EAR weekly = [(1+(r/n))^n -1]

EAR weekly = [(1+(10%/(365/7)))^(365/7) -1]

EAR weekly = 0.105065 OR 10.51%

EAR semiannually = [(1+(r/n))^n -1]

EAR semiannually = [(1+(10%/2))^ 2 -1]

EAR semiannually = 0.102500 OR 10.25%

At 13% interest:

EAR weekly = [(1+(r/n))^n -1]

EAR weekly = [(1+(13%/(365/7)))^(365/7) -1]

EAR weekly = 0.138644 OR 13.86%

At 9% interest:

EAR semiannually = [(1+(r/n))^n -1]

EAR semiannually = [(1+(9%/2))^ 2 -1]

EAR semiannually = 0.092025 OR 9.20%