Question

If the nominal rate of interest is 10% per annum and there is quarterly compounding, the effective rate of interest will be: a) 10% per annum b) 10.10 per annum c) 10.25%per annum d) 10.38% per annum​

Answer 1

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Answer:

d) 10.38%

Explanation:

The multiplier for four quarters of quarterly compounding is ...

(1 +10%/4)^4 = 1.025^4 = 1.103812890625

This is about 1 + 10.38%.

The effective rate of interest is about 10.38% per annum.