Question

Find the effective rate of interest for 12% compounded quarterlyThe effective rate of interest is %.(Round to three decimal places as needed.)

Answer 1

12.551%

EXPLANATION :

The effective rate of interest formula is :

`R=(1+(r)/(n))^n-1`

where r = nominal rate interest

n = number of compounding in a year

From the problem, the nominal rate interest is 12% or 0.12

n = 4 (compounding quarterly, 4 times in a year)

Using the formula above :

`\begin{gathered} R=(1+(0.12)/(4))^4-1 \\ R=0.12551\quad or\quad12.551\% \end{gathered}`