A quarterly repayments of a loan carry an interest rate of 8 % per annum. What is the effective annu

Discussion in 'IIBF JAIIB CAIIB' started by Ranjeet Ola, Sep 8, 2017.

  1. Ranjeet Ola

    Ranjeet Ola New Member

    A quarterly repayments of a loan carry an interest rate of 8 % per annum. What is the effective annual interest rate? a. 8.4 % b. 8.2 % c. 8.3 % d. 8.5 %
     
    Ranjeet Ola, Sep 8, 2017
    #1
  2. Rahul Verma Prajapati R V

    Rahul Verma Prajapati R V Member

    I. Effective Annual Rate is computed as if compounded annually.II. Effective Annual Rate= [(1 + r/n)^n] -1where: r = Nominal / stated rate per year. n = Number of compounding periods per year.III. For example:periodic rate = 12%Interest payments are made quarterly.Therefore, the Effective annual rate (EAR) is calculated as below.r = 12% ; n = 4EAR= [(1 + (12%/4))^4 ]-1 = 12.55%EAREIRcompounded
     
    Rahul Verma Prajapati R V, Sep 9, 2017
    #2
  3. Shiwang Pandey

    Shiwang Pandey New Member

    No need of formulas. Try like this guys..If int rate is 8%, for one quarter we need to pay 2%, which means 1.02 times of principal.So 1.02*1.02*1.02*1.02=1.0824Effective rate of int=8.24%
     
    Shiwang Pandey, Sep 9, 2017
    #3

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