Question

20 POINTS

Nora deposited money into her savings account that is compounded annually at an interest rate of 4%. Nora thought the equivalent quarterly interest rate would be 3.5%.
Is Nora correct? If she is, *explain* why.
If she is not correct, state what the equivalent quarterly interest rate is and show how you got your answer.

Answer 1

Ni is not correct. To solve the equivalent quarterly interest rate, the annual interest rate should be multiplied by the correct ratio. Since the annual interest rate is 4% per year. So in 1 quarter is equal to 0.25 year.

(4% / year) (0.25 year/ 1 quarter) = 1% per quarter