5. Under compund interest rate model, suppose effective discount rate is 5% (a) Calculate equivalent effective annual interest rate (b) Calculate equivalent nominal interest rate compounded quarterly (c) Calculate equivalent nominal discount rate compounded daily (assume 365 days per year) (d) Calculate equivalent force of interest (e) Calculate the discount function (f) Find the present value of $5,000 to be paid at the end of 3rd year.

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Effective Interest Rate

The term interest rate can be defined as the amount that is charged by the lender as a percentage on the principal amount. Interest rate which is charged annually is known as annual percentage rate.