Norminal rate: The nominal rate is the stated interest rate that is advertised or agreed upon. In this case, the nominal rate is 10%.

Effective rate of interest: The effective rate of interest is the actual rate of interest that takes into account the compounding of interest over a specific period of time. In this case, the effective rate of interest is 10.25%.

To determine the frequency of compounding, we need to understand the relationship between the nominal rate and the effective rate of interest.

Formula for effective rate of interest:
The formula for calculating the effective rate of interest is:
Effective rate of interest = (1 + (nominal rate / n))^n - 1

Where:
- "n" represents the number of compounding periods in a year.

Calculation:
Let's calculate the frequency of compounding using the given information.

Effective rate of interest = 10.25%
Nominal rate = 10%

Using the formula, we can set up the equation as follows:
1 + (10% / n))^n = 1 + (10.25% / 1)

Simplifying the equation, we have:
(1 + (0.1 / n))^n = (1 + 0.1025)

Taking the natural logarithm of both sides of the equation, we get:
ln(1 + (0.1 / n))^n = ln(1 + 0.1025)

Simplifying further, we have:
n * ln(1 + (0.1 / n)) = ln(1.1025)

To solve for "n", we can use trial and error or numerical methods. By trying different values of "n", we find that when "n" is approximately equal to 4, the equation is satisfied.

Therefore, the frequency of compounding is 4 times per year.

Explanation:
The effective rate of interest takes into account the compounding of interest over a specific period of time. It reflects the true cost or return on an investment. In this case, the nominal rate of 10% is converted into an effective rate of 10.25% through compounding.

The formula for calculating the effective rate of interest helps us determine the frequency of compounding. By rearranging the formula and solving the equation, we find that the frequency of compounding is 4 times per year.

It is important to understand the frequency of compounding as it affects the total amount of interest earned or paid. The more frequent the compounding, the higher the effective interest rate will be. Therefore, it is crucial to consider the compounding frequency when comparing different financial products or evaluating investment opportunities.