Calculate the effective rate of 12% compounded quarterly.

Name: Calculate the effective rate of 12% compounded quarterly.
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Question

Quizplus · Accepted Answer

To find the effective rate, we use the formula: 
(1 + i/n)^n - 1
where i is the nominal rate (12%) and n is the number of times the interest is compounded per year (4, since it is compounded quarterly).

(1 + 0.12/4)^4 - 1 = 0.1255 or 12.55% (rounded to two decimal places)

Therefore, the best choice is B.

Calculate the Effective Rate of 12% Compounded Quarterly