An interest rate is 12% per annum with semiannual compounding.What is the equivalent rate with quarterly compounding?
A) 11.83%
B) 11.66%
C) 11.77%
D) 11.92%

Question

Quizplus · Accepted Answer

The equivalent rate with quarterly compounding is 11.83%. This is because the effective annual rate is the same regardless of the compounding frequency. The effective annual rate is calculated as (1 + (nominal rate / number of compounding periods))^number of compounding periods - 1. In this case, the nominal rate is 12%, the number of compounding periods is 2 (for semiannual compounding) or 4 (for quarterly compounding), and the effective annual rate is (1 + (0.12 / 2))^2 - 1 = 12.25% or (1 + (0.12 / 4))^4 - 1 = 12.25%.

An Interest Rate Is 12% Per Annum with Semiannual Compounding