Hi guys..We've just discussed about our assignment and it was really interesting. We also discussed about Credit Cards and Interest Rates. There are 2 types of interest rate:
Nominal Interest Rate is the interest that the bank given.
For example: If the bank has 5% interest rate in semi-annually, the Nominal Interest Rate would be 10%. It will be 10% percent because semi-annually is half a year and annually get charged. Like:
05%(2) =10% (2) - represent a 1/2 year
and Effective Interest Rate is the rate that you actually charge on an annually basis and or paying interest on interest each compounding period.
Here are the Solution to get the Effective Interest Rate:
Effective Interest Rate = ( 1 + i / m ) ^m -1
Effective Interest Rate = ( 1 + 0.10 / 2 ) ^2 -1
Effective Interest Rate = ( 1 + 0.05 ) ^2 -1
Effective Interest Rate = ( 1.05 ) ^2 -1
Effective Interest Rate = 1.1025 -1
Effective Interest Rate = 0.1025
or = 10.25%
NOTE :
m - is the number of compounding period like:
Monthly (12), Quarterly (4), Semi-annually (2) and Weekly (52)
i - is the Nominal Interest Rate.
! This website might give you some great ideas about Interest Rates and solution to your questions:
http://freeonlinecalculator.net/calculators/financial/effective-interest-rate.php
In addition to, we also discussed about the "Rule of 72". The "Rule of 72" is a simplified way to determine how long an investment to take double, given a fixed annual rate of interest.
Formula of "Rule of 72" is:
Years = 72 / ( Interest Rate % )
Rate = 72 / Years
http://www.investopedia.com/ask/answers/04/040104.asp and or
If you have questions and complains to my post, i really appreciate to send me a comment.
Next Scribe is Chelsea.!!.
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