Question

Problem 1 (15 Points Total): a) (5 points) For an interest rate of 1% per quarter, determine the nominal interest rate per i) semiannual period, ii) year, and iii) 2 years. b) (10 points) You plan to deposit $100 per week into a fund that pays interest of 6% per year, compounded quarterly. Identify the interest period, compounding period, and number of times interest is compounded per interest period.

Answer 1

Nominal interest rate semi annual =2%

Nominal interest rate yearly = 4%

Nominal interest rate per 2 year = 8%

4 quarters in 1 year

Step-by-step explanation:

given data

interest rate = 1%

deposit = $100 per week

interest = 6% per year

solution

when quarterly interest rate is 1%

so that here Nominal interest rate per semi annual period will be

Nominal interest rate semi annual = 1% × 2

Nominal interest rate semi annual =2%

and

Nominal interest rate per year will be

Nominal interest rate yearly = 1% × 4

Nominal interest rate yearly = 4%

and

Nominal interest rate per 2 year will be

Nominal interest rate per 2 year = 1% × 8

Nominal interest rate per 2 year = 8%

and

when Interest rate compounded quarterly is 6% per year

so here Interest period 1 year as interest will be paid annually

and Compounding period is 1 quarter is compounding quarterly

and here

Interest will be compounded 4 times in 1 interest period

so there is 4 quarters in 1 year