What is the effective annual rate of 8% compounded quarterly?

Question

Quizplus · Accepted Answer

The effective annual rate (EAR) can be calculated using the formula: $(1 + \frac{r}{n})^n - 1$, where $r$ is the annual nominal interest rate (expressed as a decimal), and $n$ is the number of compounding periods per year. For an 8% rate compounded quarterly, $r = 0.08$ and $n = 4$. Plugging these values into the formula gives $(1 + \frac{0.08}{4})^4 - 1 = (1 + 0.02)^4 - 1 = 1.08243216 - 1 = 0.0824$ or 8.24%.

What Is the Effective Annual Rate of 8% Compounded Quarterly