4. Non annual compounding period The number of compounding periods in one year is called compounding frequency. The compounding frequency affects both the present and future values of cash flows. An investor can invest money with a particular bank and earn a stated interest rate of 11.00%; however, interest will be compounded quarterly. Complete the following table by computing the nominal (or stated), periodic, and effective interest rates for this investment opportunity. Value Interest Rates Nominal rate Periodic rate Effective annual rate Clancy needs a loan and is speaking to several lending agencies about their interest rates and loan terms. He particularly likes his local bank because he is being offered a nominal rate of 10.00%. However, since the bank is compounding its interest semiannually, the loan will impose an effective interest rate of on his loan. Another bank is also offering favorable terms, so Clancy decides to take a loan of $15,000 from this bank. He signs the loan contract at 13.00% compounded daily for three months. Based on a 365-day year, what is the total amount that Clancy owes the bank at the end of the loan's term? (Hint: To calculate the number of days, divide the number of months by 12 and multiply by 365.) $15,495.19 $16,037.52 $16,115.00 $16,424.90
4. Non annual compounding period The number of compounding periods in one year is called compounding frequency. The compounding frequency affects both the present and future values of cash flows. An investor can invest money with a particular bank and earn a stated interest rate of 11.00%; however, interest will be compounded quarterly. Complete the following table by computing the nominal (or stated), periodic, and effective interest rates for this investment opportunity. Value Interest Rates Nominal rate Periodic rate Effective annual rate Clancy needs a loan and is speaking to several lending agencies about their interest rates and loan terms. He particularly likes his local bank because he is being offered a nominal rate of 10.00%. However, since the bank is compounding its interest semiannually, the loan will impose an effective interest rate of on his loan. Another bank is also offering favorable terms, so Clancy decides to take a loan of $15,000 from this bank. He signs the loan contract at 13.00% compounded daily for three months. Based on a 365-day year, what is the total amount that Clancy owes the bank at the end of the loan's term? (Hint: To calculate the number of days, divide the number of months by 12 and multiply by 365.) $15,495.19 $16,037.52 $16,115.00 $16,424.90
Financial Accounting: The Impact on Decision Makers
10th Edition
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Gary A. Porter, Curtis L. Norton
Chapter9: Current Liabilities, Contingencies, And The Time Value Of Money
Section: Chapter Questions
Problem 9.21MCE
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Transcribed Image Text:4. Non annual compounding period
The number of compounding periods in one year is called compounding frequency. The compounding frequency affects both the present and future
values of cash flows.
An investor can invest money with a particular bank and earn a stated interest rate of 11.00%; however, interest will be compounded quarterly.
Complete the following table by computing the nominal (or stated), periodic, and effective interest rates for this investment opportunity.
Interest Rates
Nominal rate :
Periodic rate
Effective annual rate
Clancy needs a loan and is speaking to several lending agencies about their interest rates and loan terms. He particularly likes his local bank because
he is being offered a nominal rate of 10.00%. However, since the bank is compounding its interest semiannually, the loan will impose an effective
interest rate of
on his loan.
Another bank is also offering favorable terms, so Clancy decides to take a loan of $15,000 from this bank. He signs the loan contract at 13.00%
compounded daily for three months. Based on a 365-day year, what is the total amount that Clancy owes the bank at the end of the loan's term?
(Hint: To calculate the number of days, divide the number of months by 12 and multiply by 365.)
O $15,495.19
Ⓒ$16,037.52
Value
$16,115.00
O $16,424.90
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