You have $10,000 deposited in a savings account

Finance Dec 22, 2020

You have $10,000 deposited in a savings account. The money has been earning an annual rate of 12% Interest, compounded quarterly. What is your effective annual rate of interest? 13.30% 12.25 1165% 0 12.55% 12%

Expert Solution

The sum invested 10000

Rate = 12 % pa

Compounded quarterly

SO the Effective interest rate EIR

EIR % = (1+ R/n ) ^ n – 1

Where

R is the Nominal interest rate

N Is the number of compounding

So Putting the values

EIR = ( 1+ 0.12 /4 ) ^ 4 ) – 1 = 0.1255 or 12.55 %

So the effective rate is Option D 12.55 %

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