Answered: Given that the annual rate compounded…

Given that the annual rate compounded continuously is 12.5%, find the equivalent rate per: year compounded daily monthly compounded monthly

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

Hello,

I am unsure how to calculate the interest rates for this quetsion:

Given that the annual rate compounded continuously is 12.5%, find the equivalent rate
per:

year compounded daily

monthly compounded monthly

year copounded every two years

Expert Solution

Step 1: Introduction of annual rate

Annual rate refers to the interest rate that is to be paid annually for the repayment of a loan amount at specified rate of interest for a definite period of time.

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