Your bank account pays an 8% nominal rate of interest. The interest is compounde

Question

Your bank account pays an 8% nominal rate of interest. The interest is compounded quarterly. Which of the following statements is CORRECT?Answer The periodic rate of interest is 2% and the effective
rate of interest is 4%. The periodic rate of interest is 8% and the effective
rate of interest is greater than 8%. The periodic rate of interest is 4% and the effective
rate of interest is less than 8%. The periodic rate of interest is 2% and the effective
rate of interest is greater than 8%. The periodic rate of interest is 8% and the effective
rate of interest is also 8%. The periodic rate of interest is 2% and the effective
rate of interest is 4%. The periodic rate of interest is 8% and the effective
rate of interest is greater than 8%. The periodic rate of interest is 4% and the effective
rate of interest is less than 8%. The periodic rate of interest is 2% and the effective
rate of interest is greater than 8%. The periodic rate of interest is 8% and the effective
rate of interest is also 8%. The periodic rate of interest is 2% and the effective
rate of interest is 4%. The periodic rate of interest is 8% and the effective
rate of interest is greater than 8%. The periodic rate of interest is 4% and the effective
rate of interest is less than 8%. The periodic rate of interest is 2% and the effective
rate of interest is greater than 8%. The periodic rate of interest is 8% and the effective
rate of interest is also 8%.

Explanation / Answer

periodic investment rate = 8/4 =2%

effective interest rate = (1+0.08/4)^4 -1

= 8.24%

he periodic rate of interest is 2% and the effective rate of interest is greater than 8%.

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