Question

If the annual interest rate is 6%, and interest is compounded monthly, the interest rate per period is: ____%

For a 4-year loan, at 8% compounded quarterly, the number of interest periods is: _____

Answer 1

1) 0.5 %

2) 16

Explanation:

Since, a year = 12 months,

1 month =
`(1)/(12)` year,

1) If the interest is compounded monthly,

Then, the rate per period =
`\frac{\text{Annual rate}}{12}`

Given, annual rate = 6%,

So, the rate per period =
`(6)/(12)` = 0.5%,

2) 1 year = 4 quarters,

If the loan is of 4 year and it is compounded quarterly,

Then, the number of compounding periods = number of years × 4

= 4 × 4

= 16