Your bank account pays an 8% nominal rate of interest. The interest is compounde

Question

Your bank account pays an 8% nominal rate of interest. The interest is compounded quarterly. Which of the following statements is CORRECT?
Answer
The periodic rate of interest is 2% and the effective
rate of interest is 4%.
The periodic rate of interest is 8% and the effective
rate of interest is greater than 8%.
The periodic rate of interest is 4% and the effective
rate of interest is less than 8%.
The periodic rate of interest is 2% and the effective
rate of interest is greater than 8%.
The periodic rate of interest is 8% and the effective
rate of interest is also 8%.

Explanation / Answer

The periodic rate of interest is 1.5% and the effective rate of interest is greater than 6%.

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