cengage MinoTap Cengage Lea + ng.cengage.com MINDTAP Ch 05: Assignment-Time Valu

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cengage MinoTap Cengage Lea + ng.cengage.com MINDTAP Ch 05: Assignment-Time Value of Money 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 can invest money with a particular bank and eam a stated interest rate of 8.80%; however, interest will be compounded quarterly. What are the nominal, periodic, and effective interest rates for this investment opportunity? Interest Rates Nominal rate Periodic rate Effective annual rate 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 8%. But the bank is compounding semiannually. What is the effective interest rate that Rahul would pay for the loan? 8.066% 8.160% 8.019% 8.337% Another bank is also offering favorable terms, so Rahul the loan contract at 9%, compounded Rahul owes monthe by 12 and multiply by 365.) decides to take a loan of $18,000 from tnis bank. He signs daily for 12 months. Based on a 365-day year, what is the total amount that the bank at the end of the loan's term? (Hint: To calcul ate the number of davs, divide the njumber of Tyte here tsearch

Explanation / Answer

1)

nominal interest rate=stated rate=8.80%

2)

periodic rate=nominal interest rate/number of periods in a yera

=8.80%/4=2.20%

3)

effective interest rate is=(1+2.20%)^4-1=9.09%

4)

effective interest rate with semi annual compounding=(1+(8%/2))^2-1=8.160%

5)

owe at the end=18000*(1+(9%/365))^365=19694.92

the above is answer..

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