A lender offers a nominal interest rate on a loan of 6% p.a.compounding quarterly.This corresponds to an effective interest rate of 6.136%.

Question

Quizplus · Accepted Answer

The formula for converting from nominal to effective interest rate with quarterly compounding is:

Effective interest rate = (1 + i/n)^n - 1
where i is the nominal interest rate and n is the number of compounding periods per year.

Using this formula, we have:

Effective interest rate = (1 + 0.06/4)^4 - 1 = 0.06136 or 6.136%

Therefore, the statement is true.

A Lender Offers a Nominal Interest Rate on a Loan