Your bank account pays a 6% nominal rate of interest. The interest is compounded

Question

Your bank account pays a 6% nominal rate of interest. The interest is compounded quarterly. Which of the following statements is CORRECT? 1. The periodic rate of interest is 1.5% and the effective rate of interest is 3%. 2. The periodic rate of interest is 6% and the effective rate of interest is greater than 6%. 3. The periodic rate of interest is 1.5% and the effective rate of interest is greater than 6%. 4. The periodic rate of interest is 3% and the effective rate of interest is 6%. 5. The periodic rate of interest is 6% and the effective rate of interest is also 6%.

Explanation / Answer

3. The periodic rate of interest is 1.5% and the effective rate of interest is greater than 6%

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