Interest Rates Nominal rate Periodic rate Effective annual rate 13.20% 3.30% 13.

Question

Interest Rates Nominal rate Periodic rate Effective annual rate 13.20% 3.30% 13.87% | 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 12%. But the bank is compounding quarterly. What is the effective interest rate that Rahul would pay for the loan? 12.551% 12.429% 12.636% 12.734% Another bank is also offering favorable terms, so Rahul decides to take a loan of $17,000 from this bank. He signs the loan contract at 6% compounded daly for three 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 $17,257.04 $16,739.33 $17,602.18 $17,861.04 Flash Pldyer MAC 31,,10 3.34.1 4-2016 Apl. At rights reserved 013 Cengege Learning except as noted Al rights reserved Grade It Now Save & Continue Continue without saving

Explanation / Answer

Efeective rate = [ (1+r)^n ] - 1

where r is int rate per period ( Quarter)

n is no. of period ( 4)

= [ (1+r)^n ] - 1

= [ (1+0.03)^4 ] - 1

= [ (1.03)^4 ] - 1

= [ 1.1255 -1 ]

= 0.1255 i.e 12.55%

Part B:

Total Amount = Principle * [ (1+r)^n}

r = Int rate per day

= 6%/ 365 i.e

= $ 17,000 * [ (1+0.000164)^90}

= $ 17,000 * [ (1.000164)^90}

= $ 17,000 * 1.014903

= $ 17257.04

Pls comment, if any further assistance is requyired.

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.