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Homework answers / question archive / You have $10,000 deposited in a savings account
You have $10,000 deposited in a savings account. The money has been earning an annual rate of 9% interest, compounded quarterly. What is your effective annual rate of interest? 9.25% O 9.31% O 9.65% 9% 9.55%
To calculate the Effective annual interest rate
We use the below formula
i = ( 1 + r/m) ^ m -1
Where
R =Annual rate = 9%
m = period = 4 (Quarterly)
Hence
i = ( 1+ 9%/4)^4 - 1
i = 9.31%
Hence the effective annual rate = 9.31%
Correct answer is Option b = 9.31%
