You are given a loan on which interest is charged over a 4-year period, as follows: i. an effective rate of discount of 6% for the first year; ii. a nominal rate of discount of 4% compounded quarterly for the second year; iii. a nominal rate of interest of 5% compounded semiannually for the third year; and iv. a force of interest of 5% for the fourth year. Calculate the annual effective rate of interest over the 4-year period.
You are given a loan on which interest is charged over a 4-year period, as follows: i. an effective rate of discount of 6% for the first year; ii. a nominal rate of discount of 4% compounded quarterly for the second year; iii. a nominal rate of interest of 5% compounded semiannually for the third year; and iv. a force of interest of 5% for the fourth year. Calculate the annual effective rate of interest over the 4-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 4-year period, as follows:
i. an effective rate of discount of 6% for the first year;
ii. a nominal rate of discount of 4% compounded quarterly for the second year;
iii. a nominal rate of interest of 5% compounded semiannually for the third year; and
iv. a force of interest of 5% for the fourth year.
Calculate the annual effective rate of interest over the 4-year period.
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