Question

Suppose that after making 50 payments, the interest rate changes to J2=9% p.a.:

A. Convert the interest rate J2=9% to J12 equivalent

Answer 1

Given:

Suppose that after making 50 payments, the interest rate changes to J2=9% p.a.:

To find:

A. Convert the interest rate J2=9% to J12 equivalent

Solution:

From given, we have,

After making 50 payments, the interest rate changes to J2=9% p.a.

We need to convert the interest rate J2 = 9% to J12 equivalent

Jm = i × m

Nominal interest rate = 9% per annum.

J2 = 9% (compounding done twice a year)

J12 = J2 × 2 = 9% × 2 = 18% / 12 = 1.5%

∴ J12 = 1.5%