Question

Effective Rate find the effective rate of interest corresponding to a nominal rate of 7.5% per year compounded.

(a) annually
(b) semiannually
(c) quarterly
(d) monthly

Answer 1

(A) 7.5 %

(B) 3.75 %

(C) 2.5%

(D) 0.625 %

Explanation:

We have given effective rate of interest r = 7.5%

(a) Annual rate of interest will be equal to 7.5 %

(B) As we know that 1 year = 12 months

And interest is compounded semiannually

1 semiannual = 6 months

So semiannual rate of interest will be equal to
`(7.5)/(2)=3.75` %

(c) 1 quarter = 4 month

So number of period in an year = 3

So rate of interest quarterly
`=(7.5)/(3)=2.5` %

(D) Amount when amount is compounded monthly '

So number of period in an year = 12

So rate of interest
`=(7.5)/(12)=0.625` %