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An investor can invest money with a particular bank and earn a stated interest rate of...

An investor can invest money with a particular bank and earn a stated interest rate of 8.80%; however interest will be compounded quarterly. What are the nominal, periodic and effective interest rates for this investment opportunity?

Nominal Rate-

Periodic Rate-

Effective Annual Rate-

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Answer #1

Stated Interest Rate = 8.80% compounded quarterly

Nominal Rate = 8.80%

Periodic Rate = 8.80% / 4
Periodic Rate = 2.20%

Effective Annual Rate = (1 + Periodic Rate)^4 - 1
Effective Annual Rate = (1 + 0.022)^4 - 1
Effective Annual Rate = 1.0909 - 1
Effective Annual Rate = 0.0909 or 9.09%

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