bank account pays a 6% nominal rate of interest.The interest is compounded quarterly.Which of the following statements is CORRECT?
A)The periodic rate of interest is 1.5% and the effective rate of interest is 3%.
B)The periodic rate of interest is 6% and the effective rate of interest is greater than 6%.
C)The periodic rate of interest is 1.5% and the effective rate of interest is greater than 6%.
D)The periodic rate of interest is 3% and the effective rate of interest is 6%.
E)The periodic rate of interest is 6% and the effective rate of interest is also 6%.

Question

Quizplus · Accepted Answer

The periodic rate is 6%/4 = 1.5% per quarter. The effective annual rate is greater than 6% due to compounding, calculated as (1 + 0.015)^4 - 1.

Bank Account Pays a 6% Nominal Rate of Interest