For each question indicate the relationships you use and def

For each question, indicate the relationships you use and define your notation with care (the numerical answer is at 50% of a question). Don\'t forget to draw cash flow diagrams! I. Given a nominal annual rate of 12% with quarterly compounding, compute: a. The equivalent effective annual rate b. The equivalent effective six-monthly rate c. The equivalent effective monthly rate c. The equivalent effective daily rate

Solution

Effective Int Rate = (1 + nominal rate/m)ⁿ - 1

(a) Effective annual rate:-

m = 4

n = 4

(1 + 0.12/4)⁴ - 1 = 12.55%

(b) Effective Six month rate:-

m = 4

n = 2

(1 + 0.12/4)² - 1 = 6.09%

(c) Effective monthly rate:-

m=4

n=1/3

(1 + 0.12/4)^1/3 - 1 = 0.99%

(d) Effective daily rate :-

m=4

n=1/90

(1 + 0.12/4)^1/90 - 1 = 0.0328%