Question

Calculate the equivalent periodic interest rate per payment interval for the following annuity: Monthly payments discounted at 11% compounded annually.

Select one:

a. 0.88793%

b. 0.91667%

c. 0.87346%

d. 1.00078%

e. 1.11572%

Answer 1

Calculating the equivalent periodic interest rate per payment interval for the following annuity:-

where, r = interest rate

m = no of times compounding = 12

EAR= 11%

Taking 12-root on both sides,

1.0087345938 = (1+r/12)

r/12 = 0.0087345938

So, Equivalent Periodic Interest rate per month interval is 0.87346%

Hence, Option C