Bank 1 lends funds at a nominal rate of 10% with payments to be made semiannually. Bank 2 requires payments to be made quarterly. If Bank 2 would like to charge the same effective annual rate as Bank 1, what nominal interest rate will they charge their customers? Do not round intermediate calculations. Round your answer to three decimal places.

Question

Brisa Donaldson

Business

29 October, 20:15

Bank 1 lends funds at a nominal rate of 10% with payments to be made semiannually. Bank 2 requires payments to be made quarterly. If Bank 2 would like to charge the same effective annual rate as Bank 1, what nominal interest rate will they charge their customers? Do not round intermediate calculations. Round your answer to three decimal places.

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Gilmore · Answer 1

Answer: 3.333%

Explanation: Bank 1 let's assume the funds being released out as loan is $5000.

And annual nominal interest rate is 10% to be paid semiannauly 10% / 2 = 5%

That's 5% for 6months intervals.

Bank 2

Wishes to charge same annaul nominal rate as bank 1 but with interest paid quarterly.

10% annaul nominal rate

12months / 3 = 4months (quarterly).

Quarterly nominal interest 10% / 3

= 3.333%