Question

A person requests a bank loan and it is granted for 19 years. The annual interest rate is 27%.

If the compounding is monthly, what will be the interest rate in each of the compounding periods?

Answer 1

2.25%

Step-by-step explanation:

To calculate the interest rate for each compounding period, we need to consider the annual interest rate, the compounding frequency, and the total number of compounding periods.

In this scenario:

Annual interest rate: 27%

Compounding frequency: Monthly

Total number of compounding periods: 19 years (since the loan term is 19 years)

To find the interest rate for each compounding period, we divide the annual interest rate by the number of compounding periods in a year.

Number of compounding periods in a year = 12 (monthly compounding)

Interest rate per compounding period = Annual interest rate / Number of compounding periods in a year

Interest rate per compounding period = 27% / 12

Interest rate per compounding period = 0.27 / 12

Interest rate per compounding period = 0.0225 or 2.25%

Therefore, the interest rate for each compounding period, when the compounding is monthly, is 2.25%.