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the effective rate of interest corresponding to a nominal rate 3% p.a payable half uearly is
? Related: Time Value of Money (Part - 2)
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the effective rate of interest corresponding to a nominal rate 3% p.a ...
Effective Rate of Interest Calculation
Effective rate of interest is the actual interest rate earned or paid on an investment or loan, taking into account the effects of compounding over a given period. To calculate the effective rate of interest corresponding to a nominal rate of 3% p.a payable half-yearly, follow these steps:
Step 1: Convert the nominal rate to a periodic rate
Since the nominal rate is 3% p.a payable half-yearly, divide the annual rate by the number of compounding periods per year. In this case, since interest is paid half-yearly, the periodic rate would be 3% / 2 = 1.5% per half-year.
Step 2: Calculate the effective rate of interest
To calculate the effective rate of interest, use the formula:
Effective Rate = (1 + (Nominal Rate / Number of Compounding Periods)) ^ Number of Compounding Periods - 1
= (1 + (0.03 / 2)) ^ 2 - 1
= (1 + 0.015) ^ 2 - 1
= (1.015) ^ 2 - 1
= 1.030225 - 1
= 0.030225 or 3.0225%
Step 3: Interpretation
Therefore, the effective rate of interest corresponding to a nominal rate of 3% p.a payable half-yearly is approximately 3.0225%. This means that if you invest or borrow money at the nominal rate of 3% p.a with half-yearly compounding, you would effectively be earning or paying 3.0225% interest per year.
Effective rate of interest is the actual interest rate earned or paid on an investment or loan, taking into account the effects of compounding over a given period. To calculate the effective rate of interest corresponding to a nominal rate of 3% p.a payable half-yearly, follow these steps:
Step 1: Convert the nominal rate to a periodic rate
Since the nominal rate is 3% p.a payable half-yearly, divide the annual rate by the number of compounding periods per year. In this case, since interest is paid half-yearly, the periodic rate would be 3% / 2 = 1.5% per half-year.
Step 2: Calculate the effective rate of interest
To calculate the effective rate of interest, use the formula:
Effective Rate = (1 + (Nominal Rate / Number of Compounding Periods)) ^ Number of Compounding Periods - 1
= (1 + (0.03 / 2)) ^ 2 - 1
= (1 + 0.015) ^ 2 - 1
= (1.015) ^ 2 - 1
= 1.030225 - 1
= 0.030225 or 3.0225%
Step 3: Interpretation
Therefore, the effective rate of interest corresponding to a nominal rate of 3% p.a payable half-yearly is approximately 3.0225%. This means that if you invest or borrow money at the nominal rate of 3% p.a with half-yearly compounding, you would effectively be earning or paying 3.0225% interest per year.
Community Answer
the effective rate of interest corresponding to a nominal rate 3% p.a ...
Compound interest
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the effective rate of interest corresponding to a nominal rate 3% p.a payable half uearly is Related: Time Value of Money (Part - 2)?
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the effective rate of interest corresponding to a nominal rate 3% p.a payable half uearly is Related: Time Value of Money (Part - 2)? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about the effective rate of interest corresponding to a nominal rate 3% p.a payable half uearly is Related: Time Value of Money (Part - 2)? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for the effective rate of interest corresponding to a nominal rate 3% p.a payable half uearly is Related: Time Value of Money (Part - 2)?.
the effective rate of interest corresponding to a nominal rate 3% p.a payable half uearly is Related: Time Value of Money (Part - 2)? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about the effective rate of interest corresponding to a nominal rate 3% p.a payable half uearly is Related: Time Value of Money (Part - 2)? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for the effective rate of interest corresponding to a nominal rate 3% p.a payable half uearly is Related: Time Value of Money (Part - 2)?.
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