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Find the effective annual rate of interest that is equivalent to a nominal rate of interest of 7% compounded once every 4 years
Find the effective annual rate of interest that is equivalent to a nominal rate of interest of 7% compounded once every 4 years.
Expert Solution
Computation of the effective annual rate of interest (EAR):-
EAR = (1+rate/n)^n-1
= (1+7%/(1/4))^(1/4)-1
= 1.28^(1/4) -1
= 1.0637 - 1
= 6.37%
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