What is the highest effective rate attainable with a 12 percent nominal rate?
A) 12.00%
B) 12.55%
C) 12.75%
D) 12.95%

Question

Quizplus · Accepted Answer

The highest effective rate attainable with a 12% nominal rate can be calculated using the formula: (1 + nominal rate/number of compounding periods)^(number of compounding periods) - 1. 
Assuming the compounding is done annually, the effective rate would be (1+0.12/1)^1 - 1 = 0.12 or 12%. 
However, if the compounding is done more frequently, the effective rate would be higher. 
For example, if compounding is done quarterly, the effective rate would be (1+0.12/4)^4 - 1 = 0.1275 or 12.75%, which is the highest effective rate attainable with a 12% nominal rate.

What Is the Highest Effective Rate Attainable with a 12