Choose the one alternative that best completes the statement or answers the question.
Solve the problem.
-A local bank advertises that it pays interest on savings accounts at the rate of 3% compounded monthly. Find the effective rate. Round answer to two decimal places.
A) 3.04%
B) 36%
C) 3.40%
D) 3.44%

Question

Quizplus · Accepted Answer

The effective annual rate (EAR) can be calculated using the formula: EAR = (1 + i/n)^(n*t) - 1, where i is the nominal rate (0.03), n is the number of compounding periods per year (12), and t is the number of years (1). Plugging in the values, EAR = (1 + 0.03/12)^(12*1) - 1 = 0.0304 or 3.04%.

Choose the One Alternative That Best Completes the Statement or Answers