Calculate the effective annual interest rate corresponding to 12% p.a. ,compounded quarterly.
A)11.9%
B)12.55%
C)12.45%
D)12.71%

Question

Quizplus · Accepted Answer

The effective annual interest rate (EAR) can be calculated using the formula: EAR = (1 + i/n)^(n*t) - 1, where i is the nominal interest rate, n is the number of compounding periods per year, and t is the time in years. For a 12% annual interest rate compounded quarterly, i = 0.12, n = 4, and t = 1. Plugging these values into the formula gives EAR = (1 + 0.12/4)^(4*1) - 1 = (1 + 0.03)^4 - 1 ≈ 0.1255 or 12.55%.

Calculate the Effective Annual Interest Rate Corresponding to 12% P