Problem 964

Given the annual interest rate and the compounding period, find I, the interest rate per compounding period.

3.4% compounded quarterly.

 

Solution:-

 

The interest rate per compounding period is i =\frac{r}{m} where r is the annual nominal rate and m is the number of compounding periods per year.

The interest is compounded quarterly, so the compounding period is one quarter. There are 4 quarters in one  year.

m = 4

Divide the annual rate by the number of periods per year.

i= \frac{3.4}{4} = 0.85%

The interest rate per compounding period is 0.85%.

 

 

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