3. Chapter MC, Section .05, Problem 044 Your bank account pays an 8% nominal rate of...

Question

Question

Answer 1

Answer #1

Periodic Rate of Interest = Nominal rate/Number of periods per year

For quarterly compounding, Number of periods per year = 4

Periodic rate of interest = 8%/4 = 2%

Effective annual rate can be calculated using

EAR . 1 i =stated annual interest rate number f compounding periods

$EAR = (1 + \frac{0.08}{4})^{4} - 1$

EAR = 1.0824 - 1

EAR = 8.24%

Based on two calculations above, correct statement is E

Answer 2

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