What is the effective annual interest rate on a loan if the nominal annual inter

Question

What is the effective annual interest rate on a loan if the nominal annual interest rate is 12% per year compounded quarterly ? (a) 1 1.75% (h) 12% (c) 12.55% (d) 12.75% 1f the number of compounding periods per year Is greater than 1 which of the following will always be the largest? (a) nominal annual interest rate (b) period interest rate (c) effective annual interest rate (d) cannot be determined with the information given For a given nominal interest rate, under what circumstances are the effective annual interest rate and the period interest rate exactly equal? (a) never true (b) always true (c) if the number of compounding periods per year is infinite (d) if the number of compounding periods per year is one

Explanation / Answer

1

Effective Rate = (1 + 12%/4)4

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