FIND Nominal interest rate

1. Mar 13, 2005

aisha

: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. Mar 13, 2005

relinquished™

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

$$(1 + \frac{i^{(4)}}{4})^4 = (1 + \frac{i^{(12)}}{12})^{12}$$

Whatever it is, you are given $$i^{(4)}$$. Solve for $$i^{(12)}$$

3. Mar 14, 2005

aisha

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:

4. Mar 15, 2005

aisha

ANYONE KNOW IF MY PREVIOUS POSTS ANSWER IS CORRECT ANYONE??? :uhh:

5. Sep 11, 2010

gmohamed

Hi there:

[PPT]Nominal and Effective Interest rates