Question

Suppose you can borrow money at 8.6% per year (APR) compounded semiannually or 8.4 per year (APR) compounded monthly. Could it do with Finance calculator format?

Calculate the effective annual rates. 9.00% and 8.64% (Do not round intermediate calculations) Enter your answer as a percent rounded to 2 decimal places)

Answer 1

Calculation done on BAII PLUS PROFESSIONAL Calculator format:

For 8.6 per year (APR) compounded semi-annually:

Step 1: Select "2ND" button(i.e shift button) on the calculator.

Step2: Select numeric two "2"(shift mode ICONV) button.Then "NOM=" will appear on calculator screen. Input 8.6 and "Enter" button.

Step3: Click on upper arrow button. Now C/Y comes. Input 2 (for semi annual compounding) and "Enter" button.

Step4: Again click on upper arrow button. Now EFF( Effective annual rate) comes. Click on "CPT" button.

So, result of EFF will appear as 8.78 i.e Effective annual rate will be 8.78%

For 8.4 per year (APR) compounded monthly:

Step 1: Select "2ND" button(i.e shift button) on the calculator.

Step2: Select numeric two "2"(shift mode ICONV) button.Then "NOM=" will appear on calculator screen. Input 8.4 and "Enter" button.

Step3: Click on upper arrow button. Now C/Y comes. Input 12 (for monthly compounding) and "Enter" button.

Step4: Again click on upper arrow button. Now EFF( Effective annual rate) comes. Click on "CPT" button.

So, result of EFF will appear as 8.73 i.e Effective annual rate will be 8.73%

Now, as in the question, for APR 9% and 8.64% , compounding not mentioned so.taking both of them as semi annually compounding first:

Following above semi annual compounding step,

for 9% APR, EFF will be 9.20%

for 8.64% APR, EFF will be 8.83%

Following above monthly compounding step,

for 9% APR, EFF will be 9.38%

for 8.64% APR, EFF will be 8.99%