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 9% interest, compounded quarterly. What is your effective annual rate of interest? 9.25% O 9.31% O 9.65% 9% 9.55%

Expert Solution

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%

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