2. If the stated annual rate of interest compounded semi-annually is 12.5% then what is the equivalent: Semi-annual rate compounded semi-annually Annual rate compounded quarterly Annual rate compounded continuously 30 day rate compounded every 30 days Annual rate compounded weekly (use n = 7/365)
2. If the stated annual rate of interest compounded semi-annually is 12.5% then what is the equivalent: Semi-annual rate compounded semi-annually Annual rate compounded quarterly Annual rate compounded continuously 30 day rate compounded every 30 days Annual rate compounded weekly (use n = 7/365)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:2. If the stated annual rate of interest compounded semi-annually is 12.5% then what is
the equivalent:
Semi-annual rate compounded semi-annually
Annual rate compounded quarterly
Annual rate compounded continuously
30 day rate compounded every 30 days
Annual rate compounded weekly (use n = 7/365)
Expert Solution
Step 1: Effective Interest rate:
The nominal rate of interest is the rate used for computing the value of the amount invested if compounding does not occur more than once a year. If the compounding frequency is more than one, effective interest is used to adjust the compounding effect using the nominal interest rate.
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