MindTap . Cengage Learning × eCSecure https://ng.cengage nbld-851105&nbNodeld; 3

Question

MindTap . Cengage Learning × eCSecure https://ng.cengage nbld-851105&nbNodeld; 3280866068deploymentid MINDTAP Assignment 05-Time Value of Money 11. Nonannual compounding period Aa The number of compounding periods in one year is called compounding frequency. The compounding frequency affects both the present and future values of cash flows An investor an invest money with a particular bank and earn a stated interest rate of 660% however, interest be compounded quarterly. what are the nominal, periodic, and effective interest rates for this investment opportunity? Interest Rates Nominal rate Pericdic rate Effective annual rate would charge and the Rahul needs a loan and is speaking to several lending agencles about the interest rates they terms they offer, He particularly likes his local bank because he is being offered a nominal rate of 6%. But the bank is compounding bimonthl y (every two months), What is the effective Interest rate that Rahul would pay for the loan? o 6.335% 0 6.273% 0 6.152% 6.237% Another bank is also offering favorable terms, so Rat! decides to take a loan of $15,000 from this bank. He signs the loan contract at 4% compounded daily for 12 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.) $15,299.89 O $15,612.13 O $16,392.74 $16,158.55 MacBook Air

Explanation / Answer

nominal rate = 6.60%

Periodic rate = 6.60%/4 = 1.65%

Effective rate = 1.0165^4 - 1 = 6.77%

b. interest rate = (1 + 6%/6)^6 - 1 = 6.152%

c. amount to be paid = 15,000 *(1 + 4%/365)^365 = 15,612.13

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

---