What is the effective rate of interest on a CD that has a nominal rate of 9.5 percent with interest compounded monthly?
A) 9.93%
B) 9.74%
C) 10.02%
D) 9.86%

Question

Quizplus · Accepted Answer

The effective rate of interest on a CD with a nominal rate of 9.5 percent compounded monthly can be calculated using the formula: 
Effective rate = (1 + (nominal rate/number of times interest is compounded))^number of times interest is compounded - 1 
Plugging in the values, we get: 
Effective rate = (1 + (0.095/12))^12 - 1 
Effective rate = 0.0993 or 9.93% 
Therefore, the answer is A.

What Is the Effective Rate of Interest on a CD