For a nominal rate of 8% compounded quarterly, which of the following statements

Q: For a nominal rate of 8% compounded quarterly, which of the following statements

Periodic Interest rate = 0.08/4 = 0.02 or 2% Effective Interest rate = (1+r/n)^n – 1 r = Nominal interest rate = 0.08 n = number of times compounded = quarterly = 4 Effective Interest rate = (1+.08/4)^4 – 1 = 1.0824 – 1 = 0.0824 or 8.24% Hence answer is Option d - The periodic rate of interest is 2% and the effective rate of interest is greater than 8%

ID: 2825317 • Letter: F

Question

For a nominal rate of 8% compounded quarterly, which of the following statements is CORRECT?

A.)The periodic rate of interest is 2% and the effective rate of interest is 4%.

B.)The periodic rate of interest is 8% and the effective rate of interest is greater than 8%.

C.)The periodic rate of interest is 4% and the effective rate of interest is less than 8%.

D.)The periodic rate of interest is 2% and the effective rate of interest is greater than 8%.

E.)The periodic rate of interest is 8% and the effective rate of interest is also 8%.

Explanation / Answer

Periodic Interest rate = 0.08/4 = 0.02 or 2%

Effective Interest rate = (1+r/n)^n – 1

r = Nominal interest rate = 0.08

n = number of times compounded = quarterly = 4

Effective Interest rate = (1+.08/4)^4 – 1 = 1.0824 – 1 = 0.0824 or 8.24%

Hence answer is Option d - The periodic rate of interest is 2% and the effective rate of interest is greater than 8%

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For a nominal rate of 8% compounded quarterly, which of the following statements

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