Question

What is the effective interest rate of 8%p.a. nominal interest rate when compounded monthly? Ans :...

What is the effective interest rate of 8%p.a. nominal interest rate when compounded monthly? Ans : 8.30% Pls attach the formula used, and explain in detail. Pls do not answer in excel format. Thank you in advance.

Homework Answers

Answer #1

Effective interest rate = (1 + APR/n)n - 1

Effective interest rate = (1 + 0.08/12)12 - 1

Effective interest rate = (1 + 0.00667)12 - 1

Effective interest rate = (1.00667)12 - 1

Effective interest rate = 1.0830 - 1

Effective interest rate = 0.0830 or 8.30%

As the frequency of compounding increases, the effective interest rate is greater. Here, interest on interest is getting added every month. Therefore, effective rate of 8% compounded monthly will always be greater than 8% compounded annually.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The Seri Kembangan Property Development Company has a RM10,000 note receivable from a customer due in...
The Seri Kembangan Property Development Company has a RM10,000 note receivable from a customer due in three years. How much is the note worth today if the interest rate is a) 10% simple interest? b) 12% compounded monthly? c) 6% compounded quarterly? d) 18% compounded monthly? ANS : a) RM 7,692.31 b) RM 6,989.25 c) RM 8,363.87 d) RM 5,850.90 Pls attach the formula used, and explain in detail. Pls do not answer in excel format. Thank you in advance.
Chong is negotiating a contract to do some work for HAC Corporation over the next five...
Chong is negotiating a contract to do some work for HAC Corporation over the next five years. HAC proposes to pay Chong RM10,000 at the end of each of the third, fifth and seventh years. No payments will be received prior to that time. If Chong discounts these payments at 8% compounded semi anuually, what is the contract worth to him today? ANS : RM 20,433.54 Pls attach the formula used, and explain in detail. Pls do not answer in...
What is the effective monthly interest rate for a loan with a 8% nominal annual interest...
What is the effective monthly interest rate for a loan with a 8% nominal annual interest rate if the loan is compounded (a) monthly, (b) daily, or (c) continuously? A friend offers you a loan at an effective daily interest rate of 0.2%. (a) What is the nominal (also known as the APR or Annual Percentage Rate) rate for this loan? (b) What is the effective annual interest rate for his loan? Show all work please
If a nominal interest rate compounded quarterly is 8%, what is the annual effective discount rate?...
If a nominal interest rate compounded quarterly is 8%, what is the annual effective discount rate? SHOW FORMULAS AND GET THUMBS UP
Convert an interest rate of 2% per quarter compounded monthly into a nominal interest rate over...
Convert an interest rate of 2% per quarter compounded monthly into a nominal interest rate over the following time periods: Quarter Year Semiannual Decade Please include any formulas used. Thanks in advance
Exercise IV (effective and nominal interest rate) a. The effective interest rate is 21.44%. If there...
Exercise IV (effective and nominal interest rate) a. The effective interest rate is 21.44%. If there are 12 compounding periods per year, what is the nominal interest rate? b. What is the effective interest rate on a continuously compounded loan that has a nominal interest rate of 25%? c. Which is the better investment, a fund that pays 20% compounded annually, or one that pays 18.5 % compounded continuously? d. Money invested at 6% per year, compounded monthly. How money...
First Bank of Midesto Medeque pays a 8.14% nominal rate of interest compounded weekly. What is...
First Bank of Midesto Medeque pays a 8.14% nominal rate of interest compounded weekly. What is the effective rate of interest? Enter your answer as a percentage without the % sign (e.g., enter 1.25% as 1.25). (use formula Step-by-Step NOT excel)
How to calculate nominal interest rate given borrowed principal of $100,000, fixed rate mortgage for 30...
How to calculate nominal interest rate given borrowed principal of $100,000, fixed rate mortgage for 30 years, compounded monthly, and payments due at the end of each month. What is the nominal interest rate if you pay $599.55 per month. Please do not use excel! I need to know what formula to use to calculate this. Thank you.
RM60,000 is borrowed for 12 years at 5% compounded annually. The borrower does not pay interest...
RM60,000 is borrowed for 12 years at 5% compounded annually. The borrower does not pay interest currently and will pay all accrued interest at the end of 12 years together with the principal. (a) Find the amount annual sinking fund deposit necessary to liquidate the loan at the end of 12 years if the sinking fund earns 3% yearly compounding and the borrower make first payment immediately. (b) Prepared a sinking fund schedule. Ans: (a) RM 7,371.25 (PLS DUN ANSWER...
Find the interest rates in the following situations. a. APR = 8%, compounded monthly. Find the...
Find the interest rates in the following situations. a. APR = 8%, compounded monthly. Find the effective annual interest rate. b. Nominal rate is 10% compounded quarterly. Find the effective semiannual rate. c. The effective annual interest rate is 11.02% and compounding is monthly. Find the nominal interest rate. d. r = 6% and compounding is monthly. Find the effective quarterly interest rate.