Pacific Bank pays a 4.50% nominal rate on deposits, with monthly compounding.What effective annual rate (EFF%) does the bank pay?
A) 3.72%
B) 4.13%
C) 4.59%
D) 5.05%
E) 5.56%

Question

Quizplus · Accepted Answer

The effective annual rate (EFF%) can be calculated using the formula: EFF% = (1 + nominal rate/n)^n - 1, where n is the number of compounding periods per year. For a 4.50% nominal rate with monthly compounding, EFF% = (1 + 0.045/12)^12 - 1 = 4.59%.

Pacific Bank Pays a 4