Whenever payment and compounding periods differ from each other, it is recommended to compute the effective interest rate per payment period.Give reasons why?

Q: According to our authors, define and provide an example of an “effective interest rate.

A: Effective interest rate- Formula for Effective interest rate= 1+Nominal Annual interest ratenn-1…

Q: What is Simple Annuity? (payment interval, and interest period, time of payment, duration)

A: Given Simple annuity Payment interval Interest period Time of payment  Duration…

Q: Is the Compounding Period equal to Payment Period? When does this situation arise?

A: Compounding period is period by which the interest is paid or added to the principal. Payment period…

Q: The difference between the nominal interest rate and the effectiveinterest rate.

A: The nominal interest rate is the interest rate paid annually without compounding period.  The…

Q: Is the Compounding Period Equal to Payment Period?

A: Compounding period refer to the number of times the interest is paid on the amount deposited or the…

Q: How can we calculate the Times-Interest-Earned Ratio?

A: Times Interest Earned Ratio:  It is one of the solvency ratios. It is a measure to evaluate the net…

Q: Effective interest amortization method uses which of the following rates to determine interest…

A: Under the effective interest method, the interest is calculated as yield to maturity multiplied by…

Q: In order to recognize a question that requires fv of an annuity formula rather than just fv,…

A: Compounding: Compounding is the interest charged on interest. When any investment is made for…

Q: a. what is the difference between the discount rate used for net present value and the internal rate…

A: Discount rate used for net present value is rate which investor want to earn from a project . It is…

Q: Explain The Need for an External Interest Rate?

A: There is a strong need for the external interest rate because it helps in making financial…

Q: What is the difference between the stated interest rate and the market interest rate?

A: Bonds PayableBonds payable are referred to long-term debts of the business, issued to various…

Q: direct and indirect relationships between balance of payment and inflation rate.

A:

Q: When using the interest tables, the needed interest rate is determined from the intersection between…

A: Interest rate tables show the values of present value/future value factors for $1 investment at a…

Q: Identify the MARR (or external interest rate)?

A: A minimum acceptable rate of return (MARR) is the all-out advantage that a speculator wants to pick…

Q: Briefly explain the difference between Present value Annuity Due and Deferred Annuity [ explanation…

A: Present value is a current value of the amount to be received in future. The present value of an…

Q: Illustrate the very important relationships between changes in interest rates and varying rates of…

A: It illustrates an inverse relationship amongst the change in the interest rate and the varying…

Q: Notes receivable should be stated at amortized cost which is equivalent to its present value which…

A: The Amortised cost is the present value of cash inflows from note receivable using an effective…

Q: Please explain the difference between the terms interest rate and required return by defining each.

A: The amount which is charged by the lender to the borrower in order the use assets is known as the…

Q: The nominal rate of interest would be %.

A: We can define real interest rate as those interest rates which have been adjusted for the inflation…

Q: Differentiate between a stated rate of interest and effective rate of interest.

A: Answer: Stated interest rate: This is the interest rate quoted or the average rate offered by the…

Q: Briefly explain the following a. Relation between present value and interest rate

A: Present value = Applying time value to the future cash flows using interest rates Present Value =…

Q: is there a way of computation for both interest (simple and compound) that you could paid the total…

A: Simple interest is calculated on the loan or deposit's principal amount, whereas compound interest…

Q: Give an example assuming that  the Compounding Period equals to Payment Period?

A: The representation on the basis of assumption:

Q: ond interest rates may differ from market interest rates because:

A: Bonds are priced by discounting future cash flows. Future cash flows include coupons and par value…

Q: How is the receivables turnover ratio measured? What does this ratio indicate? Is a higher or lower…

A: Receivables turnover ratio is measured by dividing net credit sales of a period by average accounts…

Q: How is the Equivalence Calculations made with Effective Interest Rates?

A: The formula for Effective annual rate is  Where, r - rate of return n - number of compounding.…

Q: Summarize the varying effective interest rates per payment period under compounding frequencies?

A: The varying effective rate per payment period in case of compounding frequencies as under: When…

Q: Depending on the frequency of compounding, how can the effective interestearned (or paid by the…

A: The basic difference between compounding and simple interest is that simple interest is only offered…

Q: Calculate a currency's foward premium or discount based on interest rate differentials.

A: Using Interest rate parity theory, forward rate are calculated as follows by assuming the two…

Q: Explain the difference between an ordinary annuity and an annuity due situation.

A: Annuity: It is amount of money payable to an individual at a periodic basis which is normally a…

Q: which of the following is necessary to solve a discount problem?   a.future amount   b.interest…

A: In a discounting problem, the present value of future cash flow is calculated. In order to…

Q: Why there is a difference between the interest rate and the APR

A: Interest rates and APR are two phrases that are sometimes used interchangeably to refer to…

Q: How can we identify the MARR (or external interest rate)?

A: The minimum profit expected by an investor from an investment after considering all the risks and…

Q: Does Compounding Occur at a Different Rate than that at which payments are made? How?

A: Answer: The answer is no, because the compounding takes place at the same rate as that at which…

Q: How would an increase in the interest rate or a decrease in the number of periods until the payment…

A: Interest rate is defined as an amount of an interest due per period as the proportion of amount,…

Q: Please define the “Interest Rate Parity Theorem” and explain the equation which describes it.

A: An interest rate parity theory is defined as an interest rate differential, which is between the two…

Q: What is the Effective Rate per Payment Period?

A: Answer: The effective rate is nothing but the yearly rate under average compounding, will have…

Q: The nominal interest rate is always greater than the effective interest rate.

A: False, effective rate of interest is always greater than nominal interest rate if period of…

Q: What are the forward rates of interest? How are they determined? What do they have to do with…

A: Forward rates of interest has basis as expectation of future interest rate that are implied in the…

Q: Describe the Equivalence Calculations with Effective Interest Rates?

A: The effective interest rate is the real interest rate that is charged on the loan amount when the…

Q: clarely distinguish between nominal internest rate and effective interest rate

A: Nominal interest rate are simple interest rates that don't consider the effect of compounding.…

Q: What is the difference between the regularand discounted payback periods?

A: The Regular Payback period is one of the capital budgeting techniques. It refers to the time period…