So, I am taking an economics class this term and I have been doing ok so far. TVM, Debit ratios and the such. But last week I took one on loans that has me a little stumped. And while this is my first post, accounting will be something huge to be in my career once I finish school.
The question was asking what the effective quarterly intrest rate on a loan of 10% compounded montly would be. So I came up with EFI= (1+).10/12)^3-1
With the idea of it being 12 (compounding statment, 3 quarterly as we have 3 months per quarter (and everything else is in months). Which gave me 0.025208912 . Then * 100 which gave me 2.52 as the EFI. But this is wrong, so where did I screw up?
As I am then asked to figure out the monthly payment of said loan above (10%), if the intrest is compounded weekly and I want to make 14 payments.
Which gave me 1000(.025(1.025)^14) / ((1.025)^14-1) = 85.536 or rounded up to $85.54 But again I got this one wrong too. which leads me to beleve I missed something from above in my first question.
Please note: yes these are questions taken from an old test and yes the test has been turned in and graded. But our next chapter builds on this and I would like to see where I messed up so I can correct things. So while the awnser is nice, I want to better understand where I am screwing up.
Thank you if you can explain.
The question was asking what the effective quarterly intrest rate on a loan of 10% compounded montly would be. So I came up with EFI= (1+).10/12)^3-1
With the idea of it being 12 (compounding statment, 3 quarterly as we have 3 months per quarter (and everything else is in months). Which gave me 0.025208912 . Then * 100 which gave me 2.52 as the EFI. But this is wrong, so where did I screw up?
As I am then asked to figure out the monthly payment of said loan above (10%), if the intrest is compounded weekly and I want to make 14 payments.
Which gave me 1000(.025(1.025)^14) / ((1.025)^14-1) = 85.536 or rounded up to $85.54 But again I got this one wrong too. which leads me to beleve I missed something from above in my first question.
Please note: yes these are questions taken from an old test and yes the test has been turned in and graded. But our next chapter builds on this and I would like to see where I messed up so I can correct things. So while the awnser is nice, I want to better understand where I am screwing up.
Thank you if you can explain.