Final answer:
To find the effective annual interest rate of 4% compounded quarterly, you can use the formula: Effective Annual Interest Rate = (1 + (nominal interest rate / number of compounding periods))^(number of compounding periods) - 1. Plugging in the values, the effective annual interest rate is 4.06%.
Step-by-step explanation:
To find the effective annual interest rate of 4% compounded quarterly, we can use the formula:
Effective Annual Interest Rate = (1 + (nominal interest rate / number of compounding periods))number of compounding periods - 1
Plugging in the values, we have:
Effective Annual Interest Rate = (1 + (0.04 / 4))4 - 1
Calculating this gives:
Effective Annual Interest Rate = 0.0406 or 4.06%
Therefore, the correct answer is d. 4.06%.