You are given a loan on which interest is charged over a four-year period, as follows: i) An effective rate of discount of 6% for the first year ii) A nominal rate of discount of 5% compounded every two years for the second year iii) A nominal rate of interest of 5% compounded semiannually for the third year iv) A force of interest of 5% for the fourth year. Calculate the annual effective rate of interest over the four-year period.
You are given a loan on which interest is charged over a four-year period, as follows: i) An effective rate of discount of 6% for the first year ii) A nominal rate of discount of 5% compounded every two years for the second year iii) A nominal rate of interest of 5% compounded semiannually for the third year iv) A force of interest of 5% for the fourth year. Calculate the annual effective rate of interest over the four-year period.
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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You are given a loan on which interest is charged over a four-year period, as follows:
i) An effective rate of discount of 6% for the first year
ii) A nominal rate of discount of 5% compounded every two years for the second year
iii) A nominal rate of interest of 5% compounded semiannually for the third year
iv) A force of interest of 5% for the fourth year.
Calculate the annual effective rate of interest over the four-year period.
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