Effective semiannual interest rate for all three bids

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Reference no: EM131825169

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

Reference no: EM131825169

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