Question

Identify the compounding period for the following interest statements: ( a ) 3% per quarter; ( b ) 10% per year, compounded semiannually; ( c ) nominal 7.2% per year, compounded monthly; ( d ) effective 3.4% per quarter, compounded weekly; and ( e ) 2% per month, compounded continuously

Answer 1

Answer:

A) 3% per quarter As the rate is expresses as quarterly there are no subperiods.

b) 10% per year, compounded semiannually 2 period per cycle

c) nominal 7.2% per year, compounded monthly;

12 period per cycle

d ) effective 3.4% per quarter, compounded weekly

12 periods as we assume 4 weeks per month an a quarter has 3 months

( e ) 2% per month, compounded continuously

infinite periods as continuously compounding represent an hypothetical full use of compound capitalziation over a given period of time

Explanation: