Question

Suppose that your bank pays you 15% annual interest that is compounded quarterly. What is the effective annual interest rate (rounded to the nearest hundredth of a percent)

Answer 1

The effective annual rate will be 15.87%.

Suppose that your bank pays you 15% annual interest that is compounded quarterly. What is the effective annual interest rate?

Annual Interest Rate= 〖(1+ r/n)〗^n -1

where:

r=Nominal interest rate

n=Number of periods

=〖(1+0.15/4)〗^4 – 1

= 1.15865 - 1

=0.15865

I = 0.15865 x 100

 = 15.865 %

 = 15.87%

What is meant by annual interest rate?

The interest rate that is applied throughout a year is referred to as the annual interest rate. Interest rates may be imposed monthly, quarterly, or biannually, among other time frames. However, interest rates are typically annualized.

Which is the definition of an effective annual rate?

The actual return on a deposit after accounting for the number of times interest is paid over the course of a year is known as the effective annual rate. Comparing deposits using the cumulative power of generating interest on interest serves as a benchmark.

Learn more about effective annual rate: brainly.com/question/17088238

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