Question

A. Convert the interest rate J2=9% to J12 equivalent (2 marks)

Answer 1

Given:

The interest rate J2 = 9%

To find:

Convert the interest rate J2=9% to J12 equivalent

Solution:

From given, we have,

The interest rate J2 = 9%

The annual interest rate quoted for  the CI is referred to as the nominal interest rate per annum.

jm = i × m

where,

jm = nominal interest rate compounded "m" times per year.

m = number of compounding periods per annum

i = periodic interest rate

J2 = 9%

⇒ j2 = i × 2

⇒ 9% = i × 2

⇒ i = (9/100)/2

∴ i = 0.045

J12 = i × 12

= 0.045 × 12

∴ J12 = 0.54 = 54%