Question

Calculate the effective interest rate for each of the following nominal interest rates: a. 5.01% compounded quarterly. 0.00% Round to two decimal places b.5.01% compounded monthly. 0.00 % Round to two decimal places

Answer 1

Statement showing Computations
Particulars	Amount
a) 5.01% compounded quarterly
Quarterly rate = 5.01%/4	1.25250%
Effective annual rate = (1+1.2525/100)^4-1
Effective annual rate = (1.012525)^4-1
Effective annual rate = 1.05105 - 1
Effective annual rate = 5.10%
b) 5.01% compounded monthly
Monthly rate = 5.01%/12	0.41750%
Effective annual rate = (1+.4175/100)^12-1
Effective annual rate = (1.004175)^12-1
Effective annual rate = 1.051267 -1
Effective annual rate = 5.13%