Ok I’m having trouble calculating this problem with my BA ii Plus?
A Bank offers an effective annual rate (EAR) of 12%. Assuming quarterly compounding, the stated annual interest rate is closest to?
EAR= (1+Periodic rate)^m-1
12%= (1+ Periodic rate)^m-1
Periodic rate= square root of (12%+1)-1 ?
I can’t seem to get this right with the calculator?
3 ways to calculate this:
Using the ICONV function on your calculator: EFF=12; C/Y=4; CPT NOM=11.5% 2. Using the TVM worksheet on your calculator: FY=112; PMT=0;PV=-100; N=4; CPT I/Y=2.87 Multiply this by 4 and you get the annual rate of 11.5%
By hand using the formula: 0.12 = (1+APR/4)^4 - 1 1.12^(1/4) = 1+APR/4 1.028737345 = 1+APR/4 APR= 0.1149 = 11.5% Note that the root of power 4 is power (1/4).
Regards,
Oscar
Awesome Thanks!!