- 1 Marks
Question
What will be the effective rate for an account that pays 8% compounded quarterly?
A. 5.21%
B. 6.24%
C. 7.21%
D. 8.24%
E. 9.21%
Answer
D. 8.24%
Explanation: The effective annual rate (EAR) is calculated using the formula:
Where:
- r=0.08 (nominal annual interest rate)
- n=4 (number of compounding periods per year for quarterly compounding)
Substituting the values:
This results in an effective annual rate of approximately 8.24%, making option D the correct answer.
- Tags: Compound Interest, Effective Interest Rate, Financial Calculations
- Level: Level 1
- Topic: Basics of Business Finance and Financial Markets
- Series: MAR/JULY 2020
- Uploader: Theophilus