An investor is trying to determine the properinterest rate to apply to an account. Theaccount pays 6.24% APR with monthlycompounding. However, the payments on theaccount are once per quarter or once everythree months. What quarterly rate should weapply to the payments on the account?

We need to use effective interest rate formula below to calculate quarterly interest rate.r= Annual…

Answered: An investor is trying to determine the…

An investor is trying to determine the proper interest rate to apply to an account. The account pays 6.24% APR with monthly compounding. However, the payments on the

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 31P

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Concept explainers

Effective Interest Rate

The term interest rate can be defined as the amount that is charged by the lender as a percentage on the principal amount. Interest rate which is charged annually is known as annual percentage rate.

Question

An investor is trying to determine the proper
interest rate to apply to an account. The
account pays 6.24% APR with monthly
compounding. However, the payments on the
account are once per quarter or once every
three months. What quarterly rate should we
apply to the payments on the account?

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