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A life insurance company offers loans to its policyholders against the cash value of their policies at a (nominal) annual interest rate of 8 percent, compounded quarterly. Determine the effective...

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A life insurance company offers loans to its policyholders against the cash value of their policies at a (nominal) annual interest rate of 8 percent, compounded quarterly. Determine the effective annual percentage interest rate on these loans.

Answered Same Day Dec 24, 2021

Solution

David answered on Dec 24 2021
119 Votes
Answer:
The formula for calculating effective annual interest rate
= (1+i/n)n-1
i= standard annual interest rate
n= number of compounding period
Effective annual percentage = (1 + I/4)4– 1= (1 + 0.08/4)4– 1= (1.02)4– 1= 1.0824 – 1= 0.0824 or 8.24%
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