USING EXCEL SOLVE: If you take out a bank loan with a 17% quoted nominal interest rate that is compounded semiannually what is the effective annual rate (EAR)? What is the EAR if the loan compounds continuously? explain steps.

USING EXCEL SOLVE: If you take out a bank loan with a 17% quoted nominal interest rate that is compounded semiannually what is the effective annual rate (EAR)? What is the EAR if the loan compounds continuously? explain steps.

 

 

answer:

1) Calculation effective annual rate of interest :

Effective annual rate = (1 + r)n – 1

n = Number of compounding periods per year

r = Rate of interest for compounding period

Effective annual rate if compounded semiannually = (1 + 0.085)2 – 1

= 17.72%

Effective annual rate if compouned continuously = (1 + 0.01417)12 – 1

= 18.39%

Add Comment
0 Answer(s)
  • Votes
  • Oldest

Your Answer

By posting your answer, you agree to the privacy policy and terms of service.