Asked by Shannon Klein on Apr 23, 2024
Banks usually quote residential mortgage interest rates on the basis of semiannual compounding. An independent mortgage broker is quoting rates with monthly compounding. What rate would the broker have to give to match 6.5% compounded semiannually available from a bank?
Monthly Compounding
Calculation of interest on the principal sum plus any previously earned interest on a monthly basis.
Semiannual Compounding
The process of calculating interest on both the initial principal and the accumulated interest over two periods within a year.
- Identify equivalent interest rates with respect to various compounding durations.
Learning Objectives
- Identify equivalent interest rates with respect to various compounding durations.