Question

Question 5 5 pts What is the annual interest rate equivalent to 5% interest compounded quarterly? Choose the formula that best represents this scenario. [(1 +.05)* - 1] - 100% 100(1+5)* 100..05.4 .05 100%

Answer 1

Annual interest rate equivalent to 5% interest compounded quarterly is

Effective interest rate = [(1 + ( / n)^{n * t} - 1] * 100

t = time in years = 1

n = number of compounding periods = 4 (since compounded quarterly)

Interest rate (r) = 5%

Effective interest rate = [(1 + 0.05 / 4)^{4 * 1} - 1] * 100

Effective interest rate = [(1 + 0.05/4)⁴ - 1] * 100

Effective interest rate = 5.0945%

Option '4' is correct

Effective interest rate = [(1 + 0.05/4)⁴ - 1] * 100