Problem 630 Calculating EAR LO4 Do not round intermediane ca

Problem 6-30 Calculating EAR [LO4] (Do not round intermediane cakalations Entler your ansW Problem 6-30 Calculating EAR [LO4] misquoted)

Solution

Q1) Semiannual in a year means 2 times return in a year.

Semiannual return = Effective annual rate / 2

                               = 14.3% / 2

                               = 7.15% (Answer)

Q2) Quarterly in a year means 4 times return in a year.

Quarterly return = Effective annual rate / 4

                               = 14.3% / 4

                               = 3.575% (Answer)

Q3) Monthly in a year means 12 times return in a year.

Monthly return = Effective annual rate / 12

                               = 14.3% / 12

                               = 1.19% (Answer)