Question

A bank account has an interest rate of 1.8%. What is the equivalent interest rate used when

1: Compounding monthly
2: Compiunding quarterly
3: Compounding weekly
4: Compounding daily

Answer 1

The equivalent interest rates for different compounding periods can be calculated using specific formulas.

Step-by-step explanation:

The equivalent interest rate used when compounding monthly can be calculated using the formula:

Equivalent Rate = (1 + (Annual Rate / Number of Compounding periods))^Number of Compounding periods - 1

For compounding quarterly, the number of compounding periods per year is 4, so the formula becomes:

Equivalent Rate = (1 + (Annual Rate / 4))^4 - 1

For compounding weekly, the number of compounding periods per year is 52, so the formula becomes:

Equivalent Rate = (1 + (Annual Rate / 52))^52 - 1

And for compounding daily, the number of compounding periods per year is 365, so the formula becomes:

Equivalent Rate = (1 + (Annual Rate / 365))^365 - 1