Answer to Question #189555 in Financial Math for ntombi mshango

Question

The bank charges a nominal interest rate is 16,5% per annum, compounded at the end of every second month. The equivalent effective interest rate is

[1] 17,18%.

[2] 17,68%

. [3] 14,53%

. [4] 16,18%.

[5] none of the above. 

Answer 1

$1+i=(1+r/m)^m$

i=effective interest rate, m=6 compound periods

$1+i=(1+0.165/6)^6=1.1768$

$i=1.1768-1=0.1768=0.1768\times100\%=17.68\%$