1 which has a higher effective interest rate, 5% year compounded semi-annually 0

Question

1 which has a higher effective interest rate, 5% year compounded semi-annually 0.5% year compounded monthly? -5% CenAanled monthly 2. In the mathematical model of the (FIA) factor, the F is located one compounding after the last A. (True or False) Fa Ise 3. In using the compound interest tables, " doesn't always represents number of years B) can be a unit of time shorter than a year C) represents the number of compounding periods can be.aunit of time longer than a year all the above no above 4. Why are values for the geometric gradient factors not given in a table? these afe too mony Com bin tions and the meany tase wi th out table 5. What is the difference between an "infinite annual series" and an "infinite periodic renewal"? n infinite annual seresisa unifo annual ex Pen e S. When is it acceptable to uise the "short form equation of the geometric gradient?

Explanation / Answer

1. Table shows the interest rate for 5% for different periods

So, to the question, 5%Year compounded montly have higher Effective interest rate because, the per month interest value is added to base value, thus increases te final interest generated.

2. False, as future value (F), is taken on the last period of Annual Value (A)

3. Generally, n represents, 'number of Compounding Periods', it definetely doesn't always represent number of years

4. Many combinations are involved in Geometric Gradient and Fomulating the tables is also a big task, as to consider both g and i values in making, So using formulae is better way.

5. In Infinite Annual Series it has a series of equal annual payments that continues forever. whereas in Infinite Periodic Renewal, a fixed amount is payed at regular intervals.

6. When g=i, we use short formua i.e. Gn/(1+i)

S.No. Period Calculation Interest rate per period 1. Each Day (Daily, every 365th of year) 0.05/365 0.00013699 2. Each Month (Montly, every 12th of year) 0.05/12 0.0041667 3. Quarterly (Every 3 months) 0.05/4 0.125 4. Semi annually 0.05/2 0.25 5. Annually 0.05 0.05

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