
Chapter 4.6®  Nominal to Effective Interest Rate Calculations & Practice Questions #8  #16
Question: 10% compounded semiannually is equivalent to what effective rate? Answer:
9. Question 7.5% compounded annually is equivalent to what effective rate? Answer:
10. Question 9% compounded monthly is equivalent to what effective rate? Answer:
11. Question 9% compounded quarterly is equivalent to what effective rate?
12. Question A deposit of $1,500 grows to $4262.04 in 7 years. If the interest is compounded quarterly, what is the effective rate? Answer:
Note that this 15.2% is a nominal interest rate. What is the effective rate?
13. Question A deposit of $1300 earns $339.45 interest in 3 years. If the interest is compounded monthly, what is the effective rate? Answer:
Note that this 7.76% is a nominal interest rate. What is the effective rate?
Present Value Homework Question i)
An investor requires $25,000 in 7 years and bank offers him 6.76% effective
interest rate based on monthly compounding. What amount must he deposit
now to achieve his goal?
Now we will use this 6.56% in our present value calculation below:
Future Value to Determine Number of Periods Question An
investor has $15,000 and wishes it to grow to $80,000 in the future. If
the interest rate is 10% compounded quarterly, how long will this goal
take?

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