html? 55165121505348353947115 MINDTAP From Cengage Chapter 5 Assignment The numb
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html? 55165121505348353947115 MINDTAP From Cengage Chapter 5 Assignment The number of frequency. The affects both the present and future values of cash flows An investor can invest money with a particular bank and eam a stated interest rate of 15.40%; however, interest will be compounded quarterly. What are the nominal, periodic, and effective interest rates for this investment opportunity? Periodic rate 2.27% Rahul needs a loan and is speaking to several lending agencies about the interest rates they would charge and the terms they offer. He particularly likes his local bank because he is being offered a nominal rate of 14%. But the bank is compounding daily. What is the effective interest rate that Rahul would pay for the loan? 15.024% 15.109% 15.201% o Another bank is also offering favorable terms, so Rahul decides to take a loan of $11,000 from this bank. He signs the loan contract at 6% compounded daily for four months. Based on a 365-day year, what is the total amount that Rahul owes the bank at the end of the loan's term? (Hint: To calculate the number of days, divide the number of months by 12 and multiply by 365.) O $11,222.26 O $10,997.81 O $11,110.04 O Type here to search Ei eExplanation / Answer
Answer 1:
(a) Nominal rate = 15.40% p.a.
(b) Periodic rate is the annual interest rate divided by the number of compounding periods.
so periodic rate in this question is 3.85% (15.40 % divided by 4 quarter)
(c) Effective interest rate is compounded rate.
Ex : If $100 is invested for 1 year & interest rate is 15.40% compounded quarterly,
100 X ( 1 + .1540 / 4 ) ^ 4 = $ 116.31 [ Principal X ( 1 + Intt / period ) ^ period ]
Interest component = 116.31 less 100 = $16.31
So, effective interest rate in this case is 16.31 % p.a.
Answer 2:
Example : If $100 is invested for 1 year & interest rate is 14% compounded daily,
100 X ( 1+ .14 / 365 ) ^ 365 = 115.02
Interest component = 115.02 less 100 = $15.02
So, effective interest rate in this case is 15.02 % p.a.
Answer 3 :
Invested Amt = $ 11,000 ; Interest Rate 6 % compounded daily ; Duration = 4 months
11000 X ( 1+ .06 / 365 ) ^ 122 = $ 11,222.81
Note : Calculation of 122 Days:
( 4 Months / 12 ) X 365 = 121.67 i.e. 122 Days
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