Question

Find the periodic rate that corresponds to the given compound rate, if the rate is compounded as follows.

(Round your answers to eight decimal places.)

Compound rate = 18%

(a) quarterly
Periodic rate = ?

(b) monthly
Periodic rate = ?

(c) daily
Periodic rate = ?

(d) biweekly (every two weeks)
Periodic rate = ?

(e) semimonthly (twice a month)
Periodic rate = ?

Answer 1

• a) 0.045
• b) 0.015
• c) 0.00049315
• d) 0.00692308
• e) 0.0075

Explanation:

Apparently, your periodic rate is that used to compute the interest accrued each period. It seems to be the compound (annual) rate divided by the number of periods in a year: quarterly, 4; monthly, 12; daily, 365; biweekly, 26; semimonthly, 24.

_____

If you want the effective annual rate to be 18% in each case, the numbers are different. For n periods per year, those are calculated as

`\sqrt[n]{1.18}-1`

A periodic rate of 0.04224664 will give an effective annual rate of 18%.