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How did you get the 0.1212 or 12.12% value from this problem?

How did you get the 0.1212 or 12.12% value from this problem?

Essentials Of Investments
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
Problem 1PS
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How did you get the 0.1212 or 12.12% value from this problem?
Find the nominal rate which if converted quarterly could be used instead of 12% compounded monthly. What is the corresponding effective rate? Solution Let r = the unknown nominal rate ***For two or more nominal rate rates to be equivalent, their corresponding effective rates must be equal Nominal rate Effective rate r% compounded quarterly (1 + 4)4 - 1 12% compounded monthly (1 + 2 12 -1 Equating both, (1 + 4)ª - 1 = (1+ 12 -1 0.12 (1 + 12) 12 -1 %3D Simplifying, r = 0.1212 or 12.12% compounded quarterly
Transcribed Image Text:Find the nominal rate which if converted quarterly could be used instead of 12% compounded monthly. What is the corresponding effective rate? Solution Let r = the unknown nominal rate ***For two or more nominal rate rates to be equivalent, their corresponding effective rates must be equal Nominal rate Effective rate r% compounded quarterly (1 + 4)4 - 1 12% compounded monthly (1 + 2 12 -1 Equating both, (1 + 4)ª - 1 = (1+ 12 -1 0.12 (1 + 12) 12 -1 %3D Simplifying, r = 0.1212 or 12.12% compounded quarterly
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