Question: 5-a The stated interest rate, APR, of 13.99% compounded monthly was charged by a bank. Please find the Effective Annual Rate (EAR). 5-bA payment of $50,000 will be made to you 7 year from now. If the continuously compounded interest rate is 6%, what is the value of this financial asset to you today?


  Edit

Answer: EAR=Effective annual rate
K=Nominal interest rate
M=Compounding frequency per year

EAR = (1 + k/m)^m - 1
= (1 + 0.1399/12)^12 - 1 = 0.1492 =14.92% (Ans.)  Edit