Calculate effective annual interest rate, Finance Basics

Assignment Help:

1st bank offers you a car loan at an annual interest rate of 10% compounded monthly. What effective annual interest rate is the bank charging you? 

Solution - Calculate effective annual interest rate 

a

Rate of Interest

   

10%

b

Frequency of compunding (monthly)

12

c

Effective annual interest rate

 

10.47%

 

(1+ 10%/12)^12 - 1

     
 

The rate is divided by 12 and power is 12 as the rate

 

is annual and interest is compounded monthly.

 

 


Related Discussions:- Calculate effective annual interest rate

Constant dps plus extra or surplus, Constant DPS plus Extra or Surplus ...

Constant DPS plus Extra or Surplus 1. Beneath this policy a constant DPS is paid every year. Nonetheless extra dividends are paid in years of supernormal earnings. 2. It prov

Valuation, (Interest-rate risk) Philadelphia Electric has many bonds tradin...

(Interest-rate risk) Philadelphia Electric has many bonds trading on the New York Stock Exchange. Suppose PhilEl''s bonds have identical coupon rates of 9.125% but that one issue m

Business ethics - objectives of business entity, Business Ethics - Objectiv...

Business Ethics - Objectives of Business Entity Connected to the question of social responsibility is the matter of business ethics.  Ethics are explained as the "standards of

Identified two mutually exclusive projects, The director of capital budgeti...

The director of capital budgeting for a firm has identified two mutually exclusive projects, A and B, with the following expected net cash flows: Expected Net Cash Flows Year

Hedging at Porsche, 1. Should Porsche hedge its foreign exchange risks? 2...

1. Should Porsche hedge its foreign exchange risks? 2. How does Porsche hedge its foreign exchange risk? 3. What is the best hedging strategy? 4. How did Porsche build its Vo

Financial and Operational Hedging, There are four different commonly used f...

There are four different commonly used financial hedging techniques and some operational hedging techniques that firms use to manage currency risk. Drawing on literature, critical

Cash cycle and cash turnovers, Cash Cycle and Cash Turnovers Cash Cycl...

Cash Cycle and Cash Turnovers Cash Cycle refers to the amount of time which elapses from the point whenever the firms create a cash outlay to purchase raw materials to the poi

Significance of cost of finance, Significance of Cost of Finance The...

Significance of Cost of Finance The cost of capital is Significance since of its application in the following areas as: i) Long-term investment decisions - In capital b

Reasons for why ordinary share capital is attractive, Reasons for why Ordin...

Reasons for why Ordinary Share Capital is Attractive Reasons for why ordinary share capital is attractive despite to be risky Shares are used as securities for loans as

Working capital, #question.component.of working capital

#question.component.of working capital

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd