Calculate the equivalent periodic interest rate per payment interval for the following annuity: Monthly payments discounted at 11% compounded annually.
A) 0.87346%
B) 1.11572%
C) 0.88793%
D) 0.91667%
E) 1.00078%

Question

Quizplus · Accepted Answer

To find the equivalent periodic interest rate for monthly payments when the annual interest rate is 11% compounded annually, we use the formula for converting an annual rate to a monthly rate: $i_{monthly} = (1 + i_{annual})^{1/12} - 1$, where $i_{annual} = 0.11$. Plugging in the values, we get $i_{monthly} = (1 + 0.11)^{1/12} - 1 = 0.0087346$, or 0.87346% when expressed as a percentage.

Calculate the Equivalent Periodic Interest Rate Per Payment Interval for the Following