Equivalent interest rates are interest rates that produce the same future value after one year Show
For example, 10% compounded quarterly and 10.125% compounded semiannually are equivalent nominal interest rates. If you calculate the future value of $100 invested at either rate for one year, you will obtain $110.38. You can see that equivalent interest rates have different numerical values but produce the same effect. The term “equivalent rates” carries with it the same concept as “effective rates” but takes into account interest rates that are compounded more than once per year. Note that “effective rates” refer to interest rates that are compounded annually. To use Excel to find equivalent interest rates we can use the EFFECT and NOMINAL functions Steps:
Example:To be equivalent to 10% compounded quarterly, what must be the nominal rate with monthly compounding? Given:
Step 1:Find the Effective rate to 10% compounded quarterly. We can use the EFFECT function.  We have now found the effective rate of 10.3813%. However, we are looking for the equivalent rate to 10% compounded quarterly. Step 2Find the nominal rate that is compounded monthly that is equivalent to the effective rate of 10.3813%. We will use the compounding frequency m2=12 and the NOMINAL function. Hence, the 9.9178% compounded monthly is equivalent to 10% compounded quarterly. To see the spreadsheet used for this example:equivalent rates – template 9. What interest compounded monthly is equivalent to an interest rate of14% compounded quarterly?A.13.84%7.91%B.7.51%C.7.71%D.7.31%10. What is the annual percentage rate on a credit card that charges 10.51%with 2 compounding periods?11. A bank is advertising 9.5% annually. How often is the interestcompounded?A.MonthlyB.QuarterlyC.Bi-monthlyD.daily12. What is the effective rate of 14% compounded semi-annually?A.14.49%B.14.59%C.14.69%D.14.79%13. Money was invented at 8.00% compounded quarterly. If it takes money toquadruple in 17.5 years. What is the equivalent rate if it is compoundeddaily?B.7.92%C.7.86%D.7.48%14. What is the effective rate of interest if it is compounded semi-annually ifthe nominal rate of interest is 6%?A.6.07%B.6.05%C.6.11%D.6.09%15. Find the nominal rate, which if converted quarterly could be used insteadof 12% compounded semi-annuallyD.11.25%16. A credit card company charges 21% interest per year, compoundedmonthly. What effective annual interest rate does the company charge?A.22.27%B.21.95%C.23.14%D.24.13%17. If the effective annual rate of interest is known to be 16.08% on a deptthat has quarterly payments, what is the annual percentage rate?D.15.19%18. A man borrowed P100,000 at the interest rate of 12% per annum,compounded quarterly. What is the effective rate?19. An interest rate is quoted as being 7.5% compounded quarterly. What isthe effect annual interest rate?A.7.91%B.7.51%C.7.71%D.7.31%20. Convert 12% semi-annually to compounded quarterly. What rate compounded quarterly is equivalent to 14 compounded semiWhat effective interest rate is equivalent to 14 % per year, compounded semi- annually? Answer: i= 14.49% 2.
What nominal rate compounded quarterly is equivalent to 15% compounded monthly?So 14.06% compounded quarterly has an effective rate of 15%. 2. You can make a one-year investment at 7.8% compounded monthly, or 8% compounded semi-annually.
What nominal rate compounded monthly is equivalent to 12% compounded quarterly?So we take this to the 1/3 and then we subtracted one off again. We do that, we get 3.85 percent is the I'm all right, A phenomenal rate compounded quarterly. That's equivalent to that. 12% compounded monthly.
What is the equivalent rate of 10% compounded quarterly to compounded monthly?Step 2. Find the nominal rate that is compounded monthly that is equivalent to the effective rate of 10.3813%. We will use the compounding frequency m2=12 and the NOMINAL function. Hence, the 9.9178% compounded monthly is equivalent to 10% compounded quarterly.
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What interest compounded monthly is equivalent to an interest rate of 14% compounded quarterly
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