The annual effective rate of interest (i_eff ) is a function of: A) the annual nominal rate of interest (i_nom) B) the number of compounding intervals per year (m) C) the number of years (n) D) a and b

Question

Quizplus · Accepted Answer

The annual effective rate of interest (i_eff) is calculated using the formula i_eff = (1 + i_nom / m)^m - 1. This formula takes into account both the annual nominal rate of interest (i_nom) and the number of compounding intervals per year (m), which are represented in choices A and B. The number of years (n) is not explicitly included in the formula but can be taken into account when determining the total amount of interest earned over a specific period of time. Therefore, the correct choice is D.

The Annual Effective Rate of Interest (Ieff ) Is a Function

The Annual Effective Rate of Interest (I_eff ) Is a Function