Question

Compute each periodic interest rate, as a decimal, given the nominal interest rate and compounding period. (Round your answers to four decimal places.)

(a) 8.88% per year, compounded quarterly
(b) 9.55% per year, compounded semiannually
(c) 7.09\% per year, compounded daily

Answer 1

The periodic interest rate can be calculated using a formula based on the nominal interest rate and compounding period. We can use this formula to compute the periodic interest rates for different scenarios.

Step-by-step explanation:

To compute the periodic interest rate, as a decimal, given the nominal interest rate and compounding period, we can use the formula:

Periodic Interest Rate = (1 + (Nominal Interest Rate / Number of Compounding Periods)) - 1

Let's calculate the periodic interest rate for each scenario:

(a) 8.88% per year, compounded quarterly:

Periodic Interest Rate = (1 + (8.88% / 4)) - 1 = 0.0219

(b) 9.55% per year, compounded semiannually:

Periodic Interest Rate = (1 + (9.55% / 2)) - 1 = 0.0472

(c) 7.09% per year, compounded daily:

Periodic Interest Rate = (1 + (7.09% / 365)) - 1 = 0.000193835