Unicom Bank offers loans at an 12% nominal rate but requires that interest be paid quarterly; that is, it uses quarterly compounding. A close competitor, Milan Bank wants to charge the same effective rate on its loans but it wants to collect interest on a monthly basis, that is, to use monthly compounding. What nominal rate must Milan Bank set? Please prove assuming any value for the Principal amount and the no of years that the interest rate charged by both the banks yield the same compound amount.

Unicom Bank offers loans at an 12% nominal rate but requires that interest be paid quarterly; that is, it uses quarterly compounding. A close competitor, Milan Bank wants to charge the same effective rate on its loans but it wants to collect interest on a monthly basis, that is, to use monthly compounding. What nominal rate must Milan Bank set? Please prove assuming any value for the Principal amount and the no of years that the interest rate charged by both the banks yield the same compound amount.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 31P

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