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

A bank promises to quadruple your investment over a period of 15 years based on semi-annual compounding. What is the stated annual interest rate on this investment?

3.8 The following table shows the spot rates of interest over a number of horizons: (a) Find the present value of payments of $100 at the end of each year for 4 years.   Period of investment (in years) Spot rate (in %) 1           6.00 2           7.00 3           7.75 4           8.25

Suppose that an investment promises to pay a real 9% annual rate of interest and inflation rate is 3%. What is the effective annual interest rate on this investment assuming that interest is compounded quarterly?

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…

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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.   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…

The rates offered by a bank on deposits between $10,000 and $24,999 are shown in the following table: Term 180 to 269 days 270 to 364 days Rate. 3.15% 3.45% How much more will an investor earn from a $10,000 investment in a 364-day GIC than from two consecutive 182-day GICS? Assume that the interest rate on 180- to 269-day GICS will be the same on the renewal date as it is today. Remember that both the principal and the interest from the first 182-day GIC can be invested in the second 182-day GIC. (Use 365 days a year. Do not round the intermediate calculations. Round your final answer to 2 decimal places.) An investor will earn $ more

3.8 The following table shows the spot rates of interest over a number of horizons: (b) What is the effective rate of interest earned by this annuity-immediate if it were constant through the whole investment period?  [Hint:  Use the Excel function Rate to compute the rate of interest.] Period of investment (in years) Spot rate (in %) 1           6.00 2           7.00 3           7.75 4           8.25