Question

Assume that 4.5% is an annual interest rate. Find the interest rate for an account that is compounded

quarterly and monthly.

Answer 1

B 1.25%-0.375%

Explanation:

Compounded quarterly means there are 4 interest periods in 1 year, so divide the annual interest rate by 4.

4.5% ÷ 4 = 1.125%

Compounded monthly means there are 12 interest periods in 1 year, so divide the annual interest rate by 12.

4.5% ÷ 12 = 0.375%

Answer 2

B.

Explanation:

Quarterly interest rate is 4.5 / 4 = 1.125%.

Monthly rate is 4.5 / 12 = 0.375%.