Question

# Calculate the Nominal Interest Rate, the Interest Rate per Compounding Period and the Effective Annual Interest...

Calculate the Nominal Interest Rate, the Interest Rate per Compounding Period and the Effective Annual Interest Rate for the following problems:

1. A Bank is offering a saving account at 3% compounded monthly.

2. A Credit Card company says their card charges an APY of 8.5619% compounded quarterly.

3. Nomani wants to earn 0.25% per week.

1. A Bank is offering a saving account at 3% compounded monthly.

Nominal interest rate=i=3%

Number of compounding per year=c=12

Interest rate per compounding period=i/c=3%/12=0.25%

Effective rate of interest=(1+i/c)^c-1=(1+0.25%)^12-1=3.0416%

2. A Credit Card company says their card charges an APY of 8.5619% compounded quarterly.

In this case

Effective rate of interest=ie=8.5619%

Number of compounding per year=c=4

Interest rate per compounding period=i/c=(1+ie)^(1/c)-1=(1+8.5619%)^(1/4)-1=2.0750%

Nominal interest rate=i=(i/c)*c=2.0750%*4=8.30%

3. Nomani wants to earn 0.25% per week.

Interest rate per compounding period=i/c=0.25%

Number of compounding per year=c=52

Nominal interest rate=(i/c)*c=0.25%*52=13.00%

Effective rate of interest=(1+i/c)^c-1=(1+0.25%)^52-1=13.8644%

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