Podcast
Questions and Answers
What is the formula used for calculating the amount after quarterly compounding?
What is the formula used for calculating the amount after quarterly compounding?
- $f_1 = (1 + i)^4$
- $f_1 = (1 + rac{i}{12})^{12}$
- $f_1 = (1 + rac{i}{4})^4$ (correct)
- $f_1 = (1 + rac{i}{2})^2$
If a principal is compounded quarterly at 6% for three years, what value does it approach?
If a principal is compounded quarterly at 6% for three years, what value does it approach?
- 1.030225 (correct)
- 1.15536
- 1.06045
- 1.030243
What is the nominal rate compounded semiannually that will result in an equivalent amount as quarterly compounding at 6%?
What is the nominal rate compounded semiannually that will result in an equivalent amount as quarterly compounding at 6%?
- 4.5%
- 5%
- 3% (correct)
- 6.05%
Which step involves taking the square root in the calculation of the equivalent semiannual nominal rate?
Which step involves taking the square root in the calculation of the equivalent semiannual nominal rate?
To reach the same compound amount after three years of quarterly compounding, how is the effective rate calculated from the nominal rate?
To reach the same compound amount after three years of quarterly compounding, how is the effective rate calculated from the nominal rate?
What value does $r$ equal when solving for the nominal rate in the semiannual compounding formula?
What value does $r$ equal when solving for the nominal rate in the semiannual compounding formula?
What is the approximate effective annual rate derived from a nominal rate of 3% compounded semiannually?
What is the approximate effective annual rate derived from a nominal rate of 3% compounded semiannually?
Flashcards
What is principal?
What is principal?
The initial amount of money invested or borrowed.
What is the interest rate?
What is the interest rate?
The rate at which interest is calculated and added to the principal over a specific period, expressed as a percentage.
What is compounding frequency?
What is compounding frequency?
The number of times interest is compounded within a year. For example, quarterly compounding means interest is calculated four times a year.
What is compound amount?
What is compound amount?
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What is effective annual rate?
What is effective annual rate?
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What is the formula for compound amount?
What is the formula for compound amount?
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What is the purpose of this problem?
What is the purpose of this problem?
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