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You are quoted an APR (annual percentage rate) of
You are quoted an APR (annual percentage rate) of .0888 on a loan. The APR is a stated rate. The loan has monthly compounding.
- What is the periodic monthly rate?
- What is the equivalent effective semiannual rate?
Expert Solution
a) Computation of Periodic Monthly Rate:
Periodic Monthly Rate = APR / Number of Compounding Periods
= 0.0888/12
Periodic Monthly Rate = 0.0074
b) Computation of Equivalent Effective Semiannual Rate:
Equivalent Effective Semiannual Rate = (1+i)^n - 1
= (1+0.0074)^6 - 1
= 1.0452 - 1
Equivalent Effective Semiannual Rate = 0.0452 or 4.52%
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