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Homework Help: FIND Nominal interest rate

  1. Mar 13, 2005 #1
    :uhh: 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?
     
  2. jcsd
  3. Mar 13, 2005 #2
    I'm not really sure if your given is 18%/a convertible quarterly or 18% convertible quarterly, however, i can try to help you in both;

    The formula used here should be

    [tex]
    (1 + \frac{i^{(4)}}{4})^4 = (1 + \frac{i^{(12)}}{12})^{12}
    [/tex]

    Whatever it is, you are given [tex]i^{(4)}[/tex]. Solve for [tex]i^{(12)}[/tex]
     
  4. Mar 14, 2005 #3
    Does this make sense I did all the calculations following an example problem its a little hard to write it out here but I wrote

    P(1+0.18/4)^4=P(1+i)^12

    and solved for i finding the 12th root of the left side and then subtracting 1

    i=0.001478 or 1.478% then to get the nominal rate I multiplied this by 12

    so 12*1.478% and got = 17.736%

    Therefore 17.736%/a compounded monthly is equivalent to 18%/a compounded quarterly.

    IS THIS CORRECT? :yuck:
     
  5. Mar 15, 2005 #4
    ANYONE KNOW IF MY PREVIOUS POSTS ANSWER IS CORRECT ANYONE??? :uhh:
     
  6. Sep 11, 2010 #5
    Hi there:

    Read this lecture and you'll know the answer by yourself:

    [PPT]Nominal and Effective Interest rates

    (Write it on any search engine and then download the link - Good luck.

    Feel free to send back if you cannot get it.
     
  7. Sep 11, 2010 #6
     
    Last edited: Sep 11, 2010
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