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The effective rate of interest for one year corresponding to a nominal at 7% rate of interest per annum convertible quarterly is ?
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The effective rate of interest for one year corresponding to a nominal...
Effective Rate of Interest
The effective rate of interest is the actual amount of interest paid on a loan or earned on an investment over a year, taking into account the effects of compounding interest.
Nominal Rate of Interest
The nominal rate of interest is the stated interest rate on a loan or investment, usually expressed as an annual percentage rate (APR).
Compounding Frequency
The compounding frequency refers to how often the interest is compounded or added to the principal amount. In this case, the nominal rate of interest is 7% per annum convertible quarterly, which means the interest is compounded four times a year.
Formula for Effective Rate of Interest
The formula for calculating the effective rate of interest is:
Effective rate of interest = (1 + (nominal rate of interest/compounding frequency)) ^ compounding frequency - 1
Calculation
Using the formula above, we can calculate the effective rate of interest for one year corresponding to a nominal rate of interest of 7% per annum convertible quarterly:
Effective rate of interest = (1 + (7%/4))^4 - 1
Effective rate of interest = (1.0175)^4 - 1
Effective rate of interest = 7.25%
Explanation
When the nominal rate of interest is compounded quarterly, the effective rate of interest for one year is higher than the nominal rate of interest. This is because the interest is being compounded more frequently, resulting in a higher total interest earned or paid over the year.
Community Answer
The effective rate of interest for one year corresponding to a nominal...
E= ( 1 +0.07/4)1X 4 -1X 100.
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The effective rate of interest for one year corresponding to a nominal at 7% rate of interest per annum convertible quarterly is ?
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The effective rate of interest for one year corresponding to a nominal at 7% rate of interest per annum convertible quarterly is ? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about The effective rate of interest for one year corresponding to a nominal at 7% rate of interest per annum convertible quarterly is ? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for The effective rate of interest for one year corresponding to a nominal at 7% rate of interest per annum convertible quarterly is ?.
The effective rate of interest for one year corresponding to a nominal at 7% rate of interest per annum convertible quarterly is ? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about The effective rate of interest for one year corresponding to a nominal at 7% rate of interest per annum convertible quarterly is ? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for The effective rate of interest for one year corresponding to a nominal at 7% rate of interest per annum convertible quarterly is ?.
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