Question

If the annual interest rate is 6%, and interest is compounded monthly, the interest rate per period is: ____%

Answer 1

Answer:

1) 0.5 %

2) 16

Step-by-step explanation:

Since, a year = 12 months,

1 month = $\frac{1}{12}$ year,

1) If the interest is compounded monthly,

Then, the rate per period =  $\frac{\text{Annual rate}}{12}$

Given, annual rate = 6%,

So, the rate per period = $\frac{6}{12}$ = 0.5%,

2) 1 year = 4 quarters,

If the loan is of 4 year and it is compounded quarterly,

Then, the number of compounding periods = number of years × 4

= 4 × 4

= 16