  Finding the Interest Rate: Concept Connection Example 6-3 (page 237) 18. What interest rates are implied by the following lending arrangements?a. You borrow \$500 and repay \$555 in one year.b. You lend \$1,850 and are repaid \$2,078.66 in two years.c. You lend \$750 and are repaid \$1,114.46 in five years with quarterly compounding.d. You borrow \$12,500 and repay \$21,364.24 in three years under monthly compounding. (Note. In parts c and d, be sure to give your answer as the annual nominal rate.)Lasher, William R.. Practical Financial Management (Page 276). South-Western College Pub. Kindle Edition.

Question

Finding the Interest Rate: Concept Connection Example 6-3 (page 237) 18. What interest rates are implied by the following lending arrangements?

a. You borrow \$500 and repay \$555 in one year.

b. You lend \$1,850 and are repaid \$2,078.66 in two years.

c. You lend \$750 and are repaid \$1,114.46 in five years with quarterly compounding.

d. You borrow \$12,500 and repay \$21,364.24 in three years under monthly compounding. (Note. In parts c and d, be sure to give your answer as the annual nominal rate.)

Lasher, William R.. Practical Financial Management (Page 276). South-Western College Pub. Kindle Edition.

Step 1

Interest rate:

An interest rate is a percentage on the principal amount at which a lender gives money to a borrower and it’s an excess amount on the principal amount. It is generally represented as an annual rate.

Compounding Interest:

It is the method for computing interest at the initial amount of principal which includes the previous period’s accumulated interest. It can be compounded annually, half-yearly, quarterly and daily. The rate of compounding interest depends on the frequency of compounding.

Formula for the calculation of Amount (A) using Compounded Interest:

Amount (A) = Principal Amount (P) * (1 + rate of interest (r) / Number of times compounded (n))n*time period

Step 2

(a)

Given,

Loan/Principal Amount (P) = \$500

Repay Amount (A) = \$555

Time in years (t) = 1

Type of compounding interest = Annually

Calculation of Interest rate: help_outlineImage TranscriptioncloseRepay Amount (A) Loan/Principal Amount (P) * (1 Interest rate () fime () \$555 \$500 * (1 +Interest rate \$555 \$5001 + Interest rate (r) 1.11 1Interest rate (r) 1.11 1 Interest rate (r) - 0.11 or 11% = Interest rate (t) fullscreen
Step 3

(b)

Given,

Lend/Principal Amount (P) = \$1,850

Repaid Amount (A) = \$2,078.66

Time in years (t) = 2

Type of c... help_outlineImage Transcriptionclose(1)t Repaid Amount (A) Lend/Principal Amount (P) * (1 + Interest rate fime \$2,078.66 \$1,850 * (1 + Interest rate ()) \$2,078.66 \$1,850 (1Interest rate (t) () (1Interest rate 1.1236 (1.1236)12 1 +Interest rate () 1.06 1Interest rate (r) 1.06 1 Interest rate (r) 0.06 or 6% Interest rate (r) fullscreen

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