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CHANGING INTEREST RATE PROBLEM

Trans-Star, a spin-off company of MOPAR, supplies major automobile transmission components to auto manufacturers worldwide and is Mopar’s largest supplier. A Trans-Star Engineer has been tasked with evaluating bids for new-generation CNC machinery to be directly linked to the automated manufacturing of high-precision transmission band components. The following are three interest rates that are included in the Vendor bids. Trans-Star will make payments on a semiannual basis only. The engineer is confused about the effective interest rates-what they are annually and over the payment period of 6-months. Answer the following questions:

Bid #1: 7.15% per year, compounded monthly

Bid #2: 8.53% per year, compounded quarterly

Bid #3: 2.66% per quarter, compounded quarterly

a) Calculate the effective semiannual interest rate for ALL three bids.

b) Calculate the effective annual interest rate for ALL three bids.

?WITHOUT USING EXCEL

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92653530

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