3. Chapter MC, Section .05, Problem 044 Your bank account pays an 8% nominal rate of...

Question

Question

business finance

Answer 1

Answer #1

Periodic Rate of Interest = Nominal rate/Number of periods per year

For quarterly compounding, Number of periods per year = 4

Periodic rate of interest = 8%/4 = 2%

Effective annual rate can be calculated using

EAR . 1 i =stated annual interest rate number f compounding periods

$EAR = (1 + \frac{0.08}{4})^{4} - 1$

EAR = 1.0824 - 1

EAR = 8.24%

Based on two calculations above, correct statement is E

Answer 2

Similar Homework Help Questions

8. Chapter MC, Section .05, Problem 074 You deposit $825 today in a savings account that...

8. Chapter MC, Section .05, Problem 074 You deposit $825 today in a savings account that pays 6 % interest, compounded annually. How much will your account be worth at the end of 25 years? Oa $4,213.54 Ob. $3,965.69 Oc. $3,257.53 Od. $4,001.10 Oe. $3,540.79
Bank A pays 8% interest, compounded quarterly, on its money market account. The managers of bank...

Bank A pays 8% interest, compounded quarterly, on its money market account. The managers of bank B want its money market account’s effective annual rate to equal that of Bank A, but Bank B will compound interest on a monthly basis. What nominal, or quoted, rate must bank B set?
Need answer

Your bank account pays a 6% nominal rate of interest. The interest is compounded quarterly. Which of the following statements is CORRECT?a. The periodic rate of interest is 1.5% and the effective rate of interest is 3%.b. The periodic rate of interest is 6% and the effective rate of interest is greater than 6%.c. The periodic rate of interest is 1.5% and the effective rate of interest is greater than 6%.d. The periodic rate of interest is 3% and the...

You have $200,000 to invest for a year and have two choices. Bank A pays 8%...

You have $200,000 to invest for a year and have two choices. Bank A pays 8% annually, compounded annually. Bank B pays 8% annually, compounded quarterly. Which bank should you choose and why? A. Bank A since its effective annual rate is greater than that of Bank B. B. Bank B since its effective annual rate is greater than that of Bank A. C. It does not matter since their effective annual rate is the same 8%. D. Bank B...
A bank offers a nominal annual interest rate of 8% for a new savings account. (i)...

A bank offers a nominal annual interest rate of 8% for a new savings account. (i) What is the effective rate when compounded quarterly? Draw the cash flow diagram. (ii) If you want to build $500,000 in savings in 2 years, what quarterly annuity must be made? Draw the cash flow diagram.
You just deposited $8,000 in a bank account that pays a 4.0% nominal interest rate, compounded...

You just deposited $8,000 in a bank account that pays a 4.0% nominal interest rate, compounded quarterly. If you also add another $5,000 to the account one year (4 quarters) from now and another $7,500 to the account two years (8 quarters) from now, how much will be in the account three years (12 quarters) from now? a. $20,232.41 b. $23,789.75 c. $19,565.40 d. $26,457.76 e. $22,233.41

3) Effective versus nominal interest rates. Bank A pays 4% interest compounded annually on deposits, Bank...

3) Effective versus nominal interest rates. Bank A pays 4% interest compounded annually on deposits, Bank B pays 3.75% compounded semiannually, and Bank C pays 3.5% compounded daily. a) Which bank would you use? Why? b) If you deposited $5,000 in each bank today, how much would you have at the end of 2 years? c) What nominal rate would cause Banks B and C to provide the same effective annual rate as Bank A? d) Suppose you do not...
Your bank pays a quoted annual (nominal) rate of 12%. However, it compounds interest every week...

Your bank pays a quoted annual (nominal) rate of 12%. However, it compounds interest every week (52 times a year). What is the effective annual rate (EAR)? Select one: a. Less than 12% b. Exactly 12% c. 12.01% - 12.35% d. 12.36% - 12.70% e. More than 12.70%
A bank offers a savings account that pays interest quarterly with an effective annual rate (EAR)...

A bank offers a savings account that pays interest quarterly with an effective annual rate (EAR) of 14%. What is the applicable quarterly periodic interest earned in this account? a. 3.50% b. 6.77% c. 13.87% d. 3.33% e. 4.46%

3 pts $12,000 is deposited in a bank account that pays 8% nominal interest per year....

3 pts $12,000 is deposited in a bank account that pays 8% nominal interest per year. (a) How long does it take for the account to reach $42,500, if interest compounds quarterly? O 14 years O 16 yeans D Question 2 3 pts (b) What nominal annual interest would be required for the account to reach $30,000 in 10 years, if interest compounds monthly? 8.5%/year 92%/year