Asked by caroline sumanto on Apr 26, 2024
Verified
Calculate the equivalent periodic interest rate per payment interval for the following annuity: Monthly payments discounted at 11% compounded annually.
A) 0.87346%
B) 1.11572%
C) 0.88793%
D) 0.91667%
E) 1.00078%
Compounded Annually
This refers to the process by which the interest earned on an investment or savings is calculated once a year, adding to the principal for the next year's interest calculation.
Periodic Interest Rate
This is the interest rate charged or earned over a particular period of time, often calculated based on the annual interest rate.
Payment Interval
The frequency at which payments are made, such as monthly, quarterly, or annually.
- Ascertain corresponding periodic interest rates for varied compounding frequencies.
- Make use of financial computations to ascertain the economic value of annuities and singular payments.
Verified Answer
KR
Keimoni RamseyApr 29, 2024
Final Answer :
A
Explanation :
To find the equivalent periodic interest rate for monthly payments when the annual interest rate is 11% compounded annually, we use the formula for converting an annual rate to a monthly rate: imonthly=(1+iannual)1/12−1i_{monthly} = (1 + i_{annual})^{1/12} - 1imonthly=(1+iannual)1/12−1 , where iannual=0.11i_{annual} = 0.11iannual=0.11 . Plugging in the values, we get imonthly=(1+0.11)1/12−1=0.0087346i_{monthly} = (1 + 0.11)^{1/12} - 1 = 0.0087346imonthly=(1+0.11)1/12−1=0.0087346 , or 0.87346% when expressed as a percentage.
Learning Objectives
- Ascertain corresponding periodic interest rates for varied compounding frequencies.
- Make use of financial computations to ascertain the economic value of annuities and singular payments.