A MAN MADE A LOAN OF PHP 60,000 PAYABLE IN 3 YEARS AT 8% COMPOUNDED QUARTERLY WHAT IS THE PERIODIC INTEREST RATE?A. 2% B.4% C. 1.33% D. 8%
Question
A MAN MADE A LOAN OF PHP 60,000 PAYABLE IN 3 YEARS AT 8% COMPOUNDED QUARTERLY WHAT IS THE PERIODIC INTEREST RATE?A. 2% B.4% C. 1.33% D. 8%
Solution
To find the periodic interest rate, we need to use the formula for compound interest:
A = P(1 + r/n)^(nt)
Where: A = the final amount (PHP 60,000) P = the principal amount (PHP 60,000) r = the annual interest rate (unknown) n = the number of times interest is compounded per year (quarterly, so n = 4) t = the number of years (3 years)
We can rearrange the formula to solve for r:
r = ( (A/P)^(1/(nt)) - 1 ) * n
Substituting the given values:
r = ( (60000/60000)^(1/(4*3)) - 1 ) * 4 r = ( (1)^(1/12) - 1 ) * 4 r = ( 1 - 1 ) * 4 r = 0 * 4 r = 0%
Therefore, the periodic interest rate is 0%. None of the options A, B, C, or D are correct.
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