The number of compounding periods in one year is called
Last updated: 6/11/2023
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 4 067 3 926 4 244 4 381 Another bank is also offering favorable terms so Rahul decides to take a loan of 12 000 from this bank He signs the loan contract at 5 compounded daily for 12 months Based on a 365 day year what is the total amount that Rahul owes the bank at the end of the loan s term Hint To calculate the number of days divide the number of months by 12 and multiply by 365 12 236 75 O 13 372 12 O 13 615 21