The effective rate of interest corresponding a nominal rate of 7% p.a convertible quarterly is
a)7%
b)7.5%
c)7.10%
d)none of these
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Replies (2)
E = (1+I)^n - 1
=(1+0.07/4)^4*n-1
=(0.2675)^1/4*4-1
=0.2675 - 1
=0.7
=70%
(1+reff) = (1+r/n)^n
1+reff = (1+ 7/400)^4 = (1.0175)^4 = 1.071859
implies reff = 0.071859 = 7.1859%
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