{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

3+Dimensions+of+Interest+Rates

3+Dimensions+of+Interest+Rates - What interest rate am I...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
3 Dimensions of Interest Rates The APR (Simple, Quoted, etc.) rate is the annualized interest rate using simple interest Ignores compounding Most consumer loans (home mortgages, credit cards, student loans, car loans, etc.) utilize simple interest
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Nominal, quoted rate Annualized, no compounding Periodic rate Nominal / Compounding Effective Annual Rate Does account for compounding EAR = [(1 + (Inom/M)]M – 1 Inom = Nominal Rate M = Compounding periods in a year Inom / M = Periodic Rate
Background image of page 2
Problem My credit card claims my interest rate on carried balances is 9.2% APR.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Background image of page 4
Background image of page 5
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: What interest rate am I really paying? .092/12 = .0077 (1.077)12 – 1 = 1.0960 – 1 = .0960 = 9.60% Problem • Which one would I want to take (from the point of view of the borrower) • Lender A: 10.40%, compounded monthly • Lender B: 10.90%, compounded annually • Lender C: 10.50%, compounded quarterly Problem • I have an Effective Annual Rate of 11.72%, compounded quarterly. What is the Nominal, quoted rate in this case? .1172 = [(1+ (Inom/4))^4] -1 1.1172 = [(1+ (Inom/4))^4] 1.1172^1/4 = 1+ (Inom/4) 1.0281 = 1+ (Inom/4) .0281 = Inom/4...
View Full Document

{[ snackBarMessage ]}

Page1 / 5

3+Dimensions+of+Interest+Rates - What interest rate am I...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon bookmark
Ask a homework question - tutors are online