Multiple choice

The effective annual rate of interest corresponding to a nominal rate of 8% per annum payable quarterly, is

  1. 8.24%

  2. 8.3%

  3. 8.2%

  4. 8.01%

  5. None of these
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A Correct answer
Explanation

Nominal rate 8% quarterly means 2% per quarter. Effective rate = (1 + 0.02)^4 - 1 = 1.082432 - 1 = 0.082432 or 8.24%.

AI explanation

The effective annual rate is calculated using the formula (1 + R/100)^n - 1, where R is the nominal rate per period and n is the number of periods. For a nominal rate of 8% payable quarterly, the quarterly rate is 2%, giving the calculation (1 + 0.02)^4 - 1. This results in 1.082432 - 1, or 8.24%.

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