How many compounding periods are needed to obtain an effective interest rate of 25% if the interest rate per sub-compounding period is 1.88%?
A)13
B)12
C)11
D)10
E)9

Question

Quizplus · Accepted Answer

The formula to find the effective interest rate (EIR) given a nominal rate (r) and the number of compounding periods (n) is EIR = (1 + r)^n - 1. Rearranging to solve for n gives n = log(EIR + 1) / log(1 + r). Substituting EIR = 0.25 and r = 0.0188, we get n = log(1.25) / log(1.0188) ≈ 12.

How Many Compounding Periods Are Needed to Obtain an Effective