Question

Your bank is offering you an account that will pay 20% interest in total for a two-year deposit. Determine the equivalent discount rate for a period length of

Answer 1

The equivalent discount rate for a period length of Six months, One year, One month are:4.66% ,9.54%,0.76%.

Equivalent discount rate:

a. Six month:

Equivalent discount rate=( 1 + 0.20 )^1/4 -1

Equivalent discount rate=4.66%

b. One year:

Equivalent discount rate=( 1 + 0.20)^1/2 - 1

Equivalent discount rate=9.54%

c. One month:

Equivalent discount rate=( 1 + 0.20 )^1/24 - 1

Equivalent discount rate=0.76%

Inconclusion the equivalent discount rate for a period length of Six months, One year, One month are:4.66% ,9.54%,0.76%.

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