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aisha
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how do u do this ? Find the nominal interest rate that is equivalent to 18%/a compounded quarterly, if interest is paid monthly?
WOh confusing What do u do?
WOh confusing What do u do?
aisha said:ANYONE KNOW IF MY PREVIOUS POSTS ANSWER IS CORRECT ANYONE?
gmohamed said:Hi there:
To complete my answer after viewing the lecture I sent you with other references, yes, your answer is correct.
The formula you need to use here is as follows:
(1 + 18%/4)^4 = (1 + i/12)^12
Only i is unknown and you need to figure it out as follows:
Just do simple math, and re-write terms, then, you will find the following answer:
i = 0.1773655395684
You can also reach to the same answer by simply using the equivalent interest rate calculator.
Good luck :)
A nominal interest rate is the stated interest rate on a loan or investment, without taking into account inflation or compounding. It is the rate that is advertised or agreed upon, but not necessarily the rate that is actually earned or paid.
The nominal interest rate is typically calculated by taking the annual interest rate and dividing it by the number of compounding periods in a year. For example, if the annual interest rate is 8% and interest is compounded monthly, the nominal interest rate would be 0.08/12 = 0.0067 or 0.67% per month.
The nominal interest rate is the stated rate without taking into account any additional fees or charges, while the APR includes these additional costs. The APR is generally a more accurate representation of the true cost of borrowing or investing, as it takes into account all expenses associated with the loan or investment.
Inflation can have a significant impact on the nominal interest rate, as it decreases the purchasing power of money over time. As inflation increases, the value of the interest earned or paid decreases, making the nominal interest rate less valuable. This is why it is important to consider the inflation rate when evaluating the true return on an investment or the cost of borrowing.
Yes, the nominal interest rate can be negative, although this is uncommon. A negative nominal interest rate occurs when the rate of inflation is higher than the stated interest rate, resulting in a net loss for the borrower or investor. This can happen during times of deflation, when prices are decreasing, and the value of money is increasing.