Question

When calculating a loan’s effective rate, if the interest compounds every two months, what value of n do you plug into your equation?

Answer 1

n = number of times the interest is compounded per year

Answer 2

a.
2
b.
0.167
c.
6
d.
60

Answer 3

how many times would interest be compounded per year if every two months?

Answer 4

im guessing 6 ?

Answer 5

yup

Answer 6

thank u
Anna’s bank gives her a loan with a stated interest rate of 10.22%. How much greater will Anna’s effective interest rate be if the interest is compounded daily, rather than compounded monthly?

Answer 7

a.
0.5389 percentage points
b.
0.1373 percentage points
c.
0.4926 percentage points
d.
0.0463 percentage points

Answer 8

D is answer

Answer 9

My guess:

effective interest rate: r=(1+i/n)^n -1

so for monthly r=(1+0.1022/12)^12 -1=0.107125762
and for daily
r=(1+0.1022/365)^365 -1 = 0.107589126

To find the percentage points take compounded daily - compounded monthly:

0.107589126-0.107125762=0.000463364
to get percentage points: 0.000463364x100=0.0463 percentage points