Narrative 11-1
Solve the following problems using either Tables 11-1 or 11-2 from your text. When necessary, create new table factors. (Round new table factors to five decimal places, round dollars to the nearest cent and percents to the nearest hundredth of a percent)
-Refer to Narrative in your text 11-1. Anibal invests $5,000 at 12% interest, compounded quarterly for 1 year. Calculate the effective interest rate for his investment. (Round to nearest hundredth percent)
A) 10.12%
B) 12.55%
C) 12.15%
D) 12.50%

Question

Quizplus · Accepted Answer

The effective interest rate for an investment compounded quarterly can be calculated using the formula for the effective annual rate (EAR): $EAR = (1 + \frac{r}{n})^n - 1$, where $r$ is the annual nominal rate (0.12 in this case) and $n$ is the number of compounding periods per year (4 for quarterly). Plugging in the values: $EAR = (1 + \frac{0.12}{4})^4 - 1 = (1 + 0.03)^4 - 1 = 1.1255 - 1 = 0.1255$ or 12.55%.

Narrative 11-1 Solve the Following Problems Using Either Tables 11-1 or 11-2