The rate that the bank is offering is 2 percent compounded monthly. This is an actual rate of interest of _____________ percent.
A) 2.00
B) 2.02
C) 2.04
D) 2.50

Question

Quizplus · Accepted Answer

The effective annual rate is given by the formula (1 + r/n)^n - 1, where r is the nominal rate and n is the number of compounding periods per year. In this case, r = 2% and n = 12, so the effective annual rate is (1 + 0.02/12)^12 - 1 = 2.02%.

The Rate That the Bank Is Offering Is 2 Percent