The effective interest rate is 19.56%. If there are 12 compounding periods per y

Question

The effective interest rate is 19.56%. If there are 12 compounding periods per year, what is the nominal interest rate?

Direction Please read the questions carefully. Please draw the cash flow diagrams and explain the steps details in solving the problems. Missing Cash Flow Diagram is deductible points equal to oblems then solve the problem. Show the 20% of the total points for each question: The effective interest rate is 19.56, If there are 12 compounding periods per year, what is the nominal interest rate? eonupoundivg

Explanation / Answer

Let, nominal interest rate = R

Then,

19.56% = (1+R/12)^12 -1

1.1956 = (1+R/12)^12

Or

1.015^12 = (1+R/12)^12

1.015 = 1+R/12

R = 12*.015

R = .18 or 18%

So, nominal interest rate is 18%.

(There is no scope of cash flow diagram in this problem)

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