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17
17.Find the effective rate of annual interest 9% that paid quaterly.
Select one:
a. 9.5%
b. 9.10%
c. 9.3%
d. 9.0%
Expert Solution
Effective rate of interest = [( 1 + Annual Interest rate / Number of Compounding) ^ Number of compounding] - 1
Number of Compounding = Quarterly
= 12 Months / 3 Months
Number of compounding = 4
Effective rate of interest =[ ( 1 + 9%/4)^4] - 1
= (1 + 2.25%)^4 - 1
= (1.0225)^4 - 1
=1.09308331879- 1
= 0.09308331879
In Percentage . 0.09308331879 * 100
= 9.308331879%
So, Rounded to two decimals, The Effective rate of interest is 9.30% [Option C is the correct answer]
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