Question

The Bawl Street Journal costs $580, payable now, for a 2-year subscription. The newspaper is published 252 days per year (5 days per week, except holidays). If a 10% nominal annual interest rate compounded quarterly is used: What is the effective annual interest rate in this problem?

Answer 1

Answer:

The effective annual rate of interest is "10.38%".

Explanation:

The given values are:

Nominal annual interest rate,

Q = 10%

i.e.,

   = 0.10

Quarterly compounding,

q = 4

Now,

The effective annual rate of interest will be:

=  $[{1 + (\frac{Q}{q} )}^q] - 1$

On substituting the given values in the above formula, we get

=  $[{1 + (\frac{0.10}{4} )}^4] 1$

=  $[(1 + 0.025)^4] - 1$

=  $(1.025)^4-1$

=  $1.10381289 - 1$

=  $0.10381289$

On converting it into percentage, we get

=  $10.38$%