Question

You invest $8,000 now and get $10,000 back in 8 years.

(A) What nominal interest rate convertible every four months did
you earn?

(B) What nominal discount rate compounded monthly did you
earn?

(C) What annual effective rate of discount did you earn?

Answer #1

a)

PV = 8000

FV = 10000

Nper = 8 * 3 = 24

PMT = 0

Nominal interest rate can be calculated by using the following
excel formula:

=RATE(nper,pmt,pv,fv)

=RATE(24,0,-8000,10000)*3

= 2.80%

Nominal interest rate = 2.80%

b)

PV = 8000

FV = 10000

Nper = 8 * 12 = 96

PMT = 0

Nominal discount rate can be calculated by using the following
excel formula:

=RATE(nper,pmt,pv,fv)

=RATE(96,0,-8000,10000)*12

= 2.79%

c)

PV = 8000

FV = 10000

Nper = 8

PMT = 0

Annual effective rate can be calculated by using the following
excel formula:

=RATE(nper,pmt,pv,fv)

=RATE(8,0,-8000,10000)

= 2.83%

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What is the effective monthly interest rate for a loan with a 8%
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(b) What is the effective annual interest rate for
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b. What is the effective interest rate on a continuously
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(c) What is the nominal interest rate convertible semi-monthly
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(d) What is the nominal interest rate convertible once every two
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