The nominal interest rate is 6% per year compounded quarterly. What is the effective annual rate?
A)5.74%
B)5.84%
C)5.94%
D)6.04%
E)6.14%

Question

Quizplus · Accepted Answer

The effective annual rate (EAR) can be calculated using the formula: EAR = (1 + i/n)^(n*t) - 1, where i is the nominal interest rate, n is the number of compounding periods per year, and t is the time in years. Plugging in the given values: EAR = (1 + 0.06/4)^(4*1) - 1 = 1.0614 - 1 = 0.0614 or 6.14%.

The Nominal Interest Rate Is 6% Per Year Compounded Quarterly