Your bank account pays a 6% annual rate of interest. The interest is compounded quarterly. This implies that the periodic rate of interest is 1.5% and the annual rate of interest is greater than 6%.

Question

Quizplus · Accepted Answer

Compounding quarterly means that the interest is being added to the account four times a year, or every three months. Therefore, the periodic rate of interest is 1.5% (6% divided by 4), but the annual rate of interest is greater than 6% due to compounding.

Your Bank Account Pays a 6% Annual Rate of Interest