An investment at 12% nominal rate compounded monthly is equal to an annual rate of:
A) 12.68%
B) 12.36%
C) 12%
D) None of the above

Question

Quizplus · Accepted Answer

To find the annual rate, we need to use the formula for annual percentage yield (APY):

APY = (1 + (nominal rate / m))^m - 1

where m is the number of compounding periods per year. In this case, m = 12 since the investment is compounded monthly.

Plugging in the values, we get:

APY = (1 + (0.12 / 12))^12 - 1 
APY = (1.01)^12 - 1 
APY = 0.1268 or 12.68%

Therefore, choice A is the correct answer.

An Investment at 12% Nominal Rate Compounded Monthly Is Equal