Holooly Plus Logo
Holooly Plus Logo

Question 4.P.1: A bank advertises that it pays interest at the rate of 10% p......

A bank advertises that it pays interest at the rate of 10% per year, compounded quarterly. What effective interest rate is the bank paying?

Step-by-Step
The 'Blue Check Mark' means that this solution was answered by an expert.
Learn more on how do we answer questions.
Report Answer

r = 10%    t = \frac{10\%}{4} = 2.5% per quarter

Related Answered Questions

Question: 4.P.12

In Problem 4.11, suppose that Mrs. Carter deposits $100 a month during the first year, $110 a month during the second year, $120 a month during the third year, etc. How much will have accumulated at the end of 5 years if the interest rate is 6% per year, compounded monthly? ...

Verified Answer:

Treating each year separately, F = $100(F/A, 0.5%,...
Question: 4.6

A person has $4000 in a savings account at the beginning of a calendar year; the bank pays interest at 6% per year, compounded quarterly. ...

Verified Answer:

Table 4-1 shows the transactions carried out durin...
Question: 4.P.9

How much money must be deposited in a savings account each month to accumulate $10 000 at the end of 5 years, if the bank pays interest at the rate of 6% per year, compounded (a) monthly? (b) semiannually? (c) quarterly? (d) daily? ...

Verified Answer:

In each case use (2.4), with the appropriate subst...
Question: 4.P.8

Repeat Problem 4.7 using daily compounding. For computational simplicity, assume 30 days in each month (many banks do this). ...

Verified Answer:

Here, r = 10%/12 = 0.00833333 and α = 30; hence by...
Question: 4.P.7

What is the present value of a stream of monthly payments of $500 each over 10 years, if the interest rate is 10% per annum, compounded monthly? ...

Verified Answer:

Equation (2.7), with the appropriate substitutions...
Question: 4.P.6

Repeat Problem 4.5 using quarterly compounding. ...

Verified Answer:

F  =  \$1000\frac{(1  +  0.10/4)^{(4)(20)} ...
Question: 4.P.5

A man plans to save $1000 a month for the next 20 years, at 10% per year, compounded monthly. How much money will he have at the end of 20 years? ...

Verified Answer:

Equation (2.3), with the appropriate substitutions...
Question: 4.P.4

A man plans to buy a $150 000 house. He wants to make a down payment of $30 000 and to take out a 30-year mortgage for the remaining $120 000, at 10% per year, compounded monthly. How much must he repay each month? ...

Verified Answer:

Equation (2.6), with the appropriate substitutions...
Question: 4.P.3

A bank pays interest at the rate of 6% per year, compounded monthly. If a person deposits $2500 in a savings account at the bank, how much money will accumulate by the end of 2 years? ...

Verified Answer:

Equation (2.1), with the appropriate substitutions...
Question: 4.P.2

An engineer has just borrowed $8000 from a local bank, at the rate of 1% per month on the unpaid balance. His contract states that he must repay the loan in 35 equal monthly installments. How much money must he repay each month? ...

Verified Answer:

A = $8000(A/P, 1%, 35) = $8000(0.03400) = $272.00