Question

Zoe's bank is offering a low nominal rate of 3.9% om loans. If the nominal rate is compounded monthly, use r=100(1+in)n−1

to determine the effective rate. Round your answer to the nearest hundredth.
Responses

3.9%
3.9%

3.97%
3.97%

39.70%
39.70%

58.27%

Answer 1

Answer: To determine the effective rate of Zoe's loan, we can use the formula:

Effective rate = (1 + (nominal rate/number of compounding periods))^number of compounding periods - 1

Since the nominal rate is compounded monthly, the number of compounding periods is 12.

Plugging in the values, we get:

Effective rate = (1 + (0.039/12))^12 - 1

Effective rate = 0.0407 or 4.07%

Therefore, the effective rate of Zoe's loan is 4.07%, rounded to the nearest hundredth. The correct response is 3.97%.

Explanation: