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3 years ago

bank pays interest quarterly with an EAR of 9%. What is the periodic interest rate applicable per quarter

Business

1 answer:

Vika [28.1K]3 years ago

7 0

Answer:

2.18%

Explanation:

Effective interest rate = (1+i/m)^n - 1

i is stated as interest rate

m is the compounding frequency

Here, the compounding is quarterly and the effective interest rate is 8%

Since one year is equal to 4 quarter, the value of m is equals to 4

Effective interest rate = (1 + i/4)^4 - 1

9% = (1 + i/4)^4 - 1

0.09 + 1 = (1 + i/4)^4

(1.09)^1/4 = 1 + i/4

1 + i/4 = 1.02178

i/4 = 1.02178 - 1

i/4 = 0.2178

i/4 = 2.18%

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3 years ago

bank pays interest quarterly with an EAR of 9​%. What is the periodic interest rate applicable per quarter​

bank pays interest quarterly with an EAR of 9%. What is the periodic interest rate applicable per quarter