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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
- a)3.5698
- b)6.1258
- c)3.658
- d)7.1859
Correct answer is option 'D'. Can you explain this answer?
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Verified Answer
The effective rate of interest for one year corresponding to a nominal...
r = 7% p.a i.e 1.75% per quarter(7/4).
so 1+reff = (1.0175)4 = 1.071859
implies reff = 7.1859
so 1+reff = (1.0175)4 = 1.071859
implies reff = 7.1859
Most Upvoted Answer
The effective rate of interest for one year corresponding to a nominal...
To find the effective rate of interest for one year corresponding to a nominal rate of interest per annum convertible quarterly, we can use the formula:
Effective rate = (1 + r/n)^n - 1
Where:
r = nominal rate of interest per annum
n = number of conversion periods per annum
In this case, the nominal rate of interest is 7% per annum and it is convertible quarterly, which means there are 4 conversion periods per annum.
Substituting the values into the formula, we get:
Effective rate = (1 + 0.07/4)^4 - 1
Calculating this expression:
Effective rate = (1 + 0.0175)^4 - 1
= (1.0175)^4 - 1
≈ 1.071859 - 1
≈ 0.071859
Converting this to a percentage:
Effective rate ≈ 7.1859%
Therefore, the effective rate of interest for one year corresponding to a nominal rate of interest per annum convertible quarterly is approximately 7.1859%.
Hence, the correct answer is option D.
Effective rate = (1 + r/n)^n - 1
Where:
r = nominal rate of interest per annum
n = number of conversion periods per annum
In this case, the nominal rate of interest is 7% per annum and it is convertible quarterly, which means there are 4 conversion periods per annum.
Substituting the values into the formula, we get:
Effective rate = (1 + 0.07/4)^4 - 1
Calculating this expression:
Effective rate = (1 + 0.0175)^4 - 1
= (1.0175)^4 - 1
≈ 1.071859 - 1
≈ 0.071859
Converting this to a percentage:
Effective rate ≈ 7.1859%
Therefore, the effective rate of interest for one year corresponding to a nominal rate of interest per annum convertible quarterly is approximately 7.1859%.
Hence, the correct answer is option D.
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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 isa)3.5698b)6.1258c)3.658d)7.1859Correct answer is option 'D'. Can you explain this answer?
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