If compounding is quarterly, what effective annual interest rate and what nomina
ID: 1094409 • Letter: I
Question
If compounding is quarterly, what effective annual interest rate and what nominal interest rate will make the following values of P = $1,000; F = $3,000; n = 6 years equivalent.Answer: 20.1% per year; 18.7% compounded quarterly
How do we calculate the nominal interest rate? If compounding is quarterly, what effective annual interest rate and what nominal interest rate will make the following values of P = $1,000; F = $3,000; n = 6 years equivalent.
Answer: 20.1% per year; 18.7% compounded quarterly
How do we calculate the nominal interest rate?
Answer: 20.1% per year; 18.7% compounded quarterly
How do we calculate the nominal interest rate?
Explanation / Answer
F=P(1+i)^n
3000=1000(1+i)^6
3=(1+i)^n
ln 3 = 6 ln(1+i)
1.0986/6 = ln(1+i)
0.1831 = ln(1+i)
e^0.1831 = 1+i
1.201-1 = i
i = 0.201 or 20.1%
for nominal interest rate
i-eff = e^r -1
0.201 = e^r -1
1.201 = e^r
r = ln 1.201 =0.187 =18.7%
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