An investment at 10.47% effective rate compounded monthly is equal to a nominal
(annual) rate of:
A) 10.99%
B) 9.57%
C) 10%
D) None of the above

Question

Quizplus · Accepted Answer

When the effective annual interest rate is compounded monthly, we need to find the nominal rate that would yield the same effective rate. The formula for finding the nominal rate is: 
Nominal Rate = [(1 + Effective Rate/Number of periods)^Number of periods - 1] x 100
Plugging in the values, we get:
Nominal Rate = [(1 + 0.1047/12)^12 - 1] x 100 = 10%
Therefore, the best choice is C) 10%.

An Investment at 10