12. Nonannual compounding periodThe number of compounding periods in one year is called compounding frequency. The compounding frequency affects both the present and futurevalues of cash flows.An investor can invest money with a particular bank and earn a stated interest rate of 11.00%; however, interest will be compounded quarterly.Complete the following table by computing the nominal (or stated), periodic, and effective interest rates for this investment opportunity.Interest RatesNominal ratePeriodic rateEffective annual rateKenji needs a loan and is speaking to several lending agencies about their interest rates and loan terms. He particularly likes his local bank because heis being offered a nominal rate of 10.00%. However, since the bank is compounding its interest semiannually, the loan will impose an effective interestrate ofon his loan.O $14,028.30Suppose you decide to deposit $14,000 into a savings account that pays a nominal rate of 13.00%, but interest is compounded daily. Based on a 365-day year, how much would you have in your account after three months? (Hint: To calculate the number of days, divide the number of months by 12and multiply by 365.)$14,172.93Value$14,317.55▼O $14,462.17Grade It NowSave & ContinueContinue without saving

Stated rate = 11%Number of compounding periods = 4 Nominal rate = 10%Number of compounding frequency…

12. Nonannual compounding period The number of compounding periods in one year is called compounding frequency. The compounding frequency affects both the present and fut values of cash flows. An investor can invest money with a particular bank and earn a stated interest rate of 11.00%; however, interest will be compounded quarterly. Complete the following table by computing the nominal (or stated), periodic, and effective interest rates for this investment opportunity. Interest Rates Nominal rate Value

12. Nonannual compounding period The number of compounding periods in one year is called compounding frequency. The compounding frequency affects both the present and fut values of cash flows. An investor can invest money with a particular bank and earn a stated interest rate of 11.00%; however, interest will be compounded quarterly. Complete the following table by computing the nominal (or stated), periodic, and effective interest rates for this investment opportunity. Interest Rates Nominal rate Value

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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12. Nonannual compounding period The number of compounding periods in one year is called compounding frequency. The compounding frequency affects both the present and future values of cash flows. An investor can invest money with a particular bank and earn a stated interest rate of 8.80%; however, interest will be compounded quarterly. 1. Complete the following table by computing the nominal (or stated), periodic, and effective interest rates for this investment opportunity. Interest Rates Value Nominal rate Periodic rate Effective annual rate 2. Brian needs a loan and is speaking to several lending agencies about their interest rates and loan terms. He particularly likes his local bank because he is being offered a nominal rate of 8.00%. However, since the bank is compounding its interest monthly, the loan will impose an effective interest rate of on his loan. 3. Suppose you decide to deposit $16,000 into a savings account that…
4. Non annual compounding period The number of compounding periods in one year is called compounding frequency. The compounding frequency affects both the present and future values of cash flows. An investor can invest money with a particular bank and earn a stated interest rate of 11.00%; however, interest will be compounded quarterly. Complete the following table by computing the nominal (or stated), periodic, and effective interest rates for this investment opportunity. Interest Rates Nominal rate : Periodic rate Effective annual rate Clancy needs a loan and is speaking to several lending agencies about their interest rates and loan terms. He particularly likes his local bank because he is being offered a nominal rate of 10.00%. However, since the bank is compounding its interest semiannually, the loan will impose an effective interest rate of on his loan. Another bank is also offering favorable terms, so Clancy decides to take a loan of $15,000 from this bank. He signs the loan…
12. Nonannual compounding period The number of compounding periods in one year is called compounding frequency. The compounding frequency affects both the present and future values of cash flows. A. An investor can invest money with a particular bank and earn a stated interest rate of 6.60%; however, interest will be compounded quarterly. What are the nominal, periodic, and effective interest rates for this investment opportunity? Interest Rates Nominal rate Periodic rate Effective annual rate B. You want to invest $24,000 and are looking for safe investment options. Your bank is offering you a certificate of deposit that pays a nominal rate of 6% that is compounded quarterly. What is the effective rate of return that you will earn from this investment? 6.221% 5.995% 6.014% 6.136% C. Suppose you decide to deposit $24,000 in a savings account that pays a nominal rate of 12%, but interest is…
3. The number of compounding periods in one year is called compounding frequency. The compounding frequency affects both the present and future values of cash flows. An investor can invest money with a particular bank and earn a stated interest rate of 6.60%; however, interest will be compounded quarterly. What are the nominal, periodic, and effective interest rates for this investment opportunity? Interest Rates Nominal rate 6.60%, 4.13%, 2.25%, 9.31% Periodic rate 2.35%, 1.65%, 6.12%, 6.77% Effective annual rate 6.77%, 4.35%, 3.66%, 6.60% Rahul needs a loan and is speaking to several lending agencies about the interest rates they would charge and the terms they offer. He particularly likes his local bank because he is being offered a nominal rate of 6%. But the bank is compounding monthly. What is the effective interest rate that Rahul would pay for the loan? A. 6.027% B. 6.289% C. 6.168% D. 6.074%…
Number of years needed to accumulate a future amount For the following case, determine the number of years it will take for the initial deposit to grow to equal the future amount at the given interest rate. (Click-on the icon here in order to copy the contents of the data table below into a spreadsheet.) The number of years for this investment, n, is Initial deposit Future amount $12,187 $24,600 years. (Round to two decimal places.) Interest rate 8%
8. Nonannual compounding period The number of compounding periods in one year is called compounding frequency. The compounding frequency affects both the present and future values of cash flows. An investor can invest money with a particular bank and earn a stated interest rate of 15.40%; however, interest will be compounded quarterly. What are the nominal, periodic, and effective interest rates for this investment opportunity? Interest Rates Nominal rate Periodic rate Effective annual rate You want to invest $11,000 and are looking for safe investment options. Your bank is offering you a certificate of deposit that pays a nominal rate of 14% that is compounded bimonthly (every two months). What is the effective rate of return that you will earn from this investment? 14.843% 15.026% 14.964% 14.702% Suppose you decide to deposit $11,000 in a savings account that pays a nominal rate of 6%, but interest is…
The number of compounding periods in one year is called compounding frequency. The compounding frequency affects both the present and future values of cash flows. An investor can invest money with a particular bank and earn a stated interest rate of 8.80%; however, interest will be compounded quarterly. What are the nominal, periodic, and effective interest rates for this investment opportunity? Interest Rates Nominal rate Periodic rate Effective annual rate Rahul needs a loan and is speaking to several lending agencies about the interest rates they would charge and the terms they offer. He particularly likes his local bank because he is being offered a nominal rate of 8%. But the bank is compounding bimonthly (every two months). What is the effective interest rate that Rahul would pay for the loan? 8.356% O8.177% 8.271% 8.392% Another bank is also offering favorable terms, so Rahul decides to take a loan of $14,000 from this bank. He signs the loan contract at 9% compounded daily for…
12. Nonannual compounding period The number of compounding periods in one year is called compounding frequency. The compounding frequency affects both the present and future values of cash flows. An investor can invest money with a particular bank and earn a stated interest rate of 4.40%; however, interest will be compounded quarterly. What are the nominal, periodic, and effective interest rates for this investment opportunity? Interest Rates Nominal rate Periodic rate Effective annual rate Rahul needs a loan and is speaking to several lending agencies about the interest rates they would charge and the terms they offer. He particularly likes his local bank because he is being offered a nominal rate of 4%. But the bank is compounding bimonthly (every two months). What is the effective interest rate that Rahul would pay for the loan? O 4.067% O 3.945% O 3.926% O 3.973%
Which of the following statements regarding the interest rates is correct? I As a result of compounding, the effective annual rate on a bank deposit (or a loan) is always equal to or less than the nominal rate on the deposit (or loan). Il If we are given a periodic interest rate, say a monthly rate, we can find the nominal annual rate by multiplying the periodic rate by the number of periods per year. III If a loan or an investment uses annual compounding, its nominal rate is also its effective rate I and III only II and III only I and II only Il only
The number of compounding periods in one year is called compounding frequency. The compounding frequency affects both the present and future values of cash flows. An investor can invest money with a particular bank and earn a stated interest rate of 15.40%; however, interest will be compounded quarterly. What are the nominal, periodic, and effective interest rates for this investment opportunity? Interest Rates Nominal rate Periodic rate Effective annual rate You want to invest $11,000 and are looking for safe investment options. Your bank is offering you a certificate of deposit that pays a nominal rate of 14% that is compounded bimonthly (every two months). What is the effective rate of return that you will earn from this investment? 14.843% 15.157% 15.026% 14.928% Suppose you decide to deposit $11,000 in a savings account that pays a nominal rate of 6%, but interest is compounded daily. Based on a 365-day…
What is the amount C of quarterly deposits such that you will be able to withdraw the amounts shown in the accompanying cash flow diagram if the interest rate is 8% compounded quarterly?
All other things being equal, the numerical difference between a present and a future value corresponds to the amount of interest earned during the deposit or investment period. Each line on the following graph corresponds to an interest rate: 0%, 8%, or 16%. Identify the interest rate that corresponds with each line. VALUE (Dollars) Line A: 01 2 3 4 5 Line B: 6 B Line C: C 7 8 9 10 TIME (Years) Investments and loans base their interest calculations on one of two possible methods: the interest and the interest methods. Both methods apply three variables-the amount of principal, the interest rate, and the investment or deposit period to the amount deposited or invested in order to compute the amount of interest. However, the two methods differ in their relationship between the variables.

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