Answer:
a) 12%
b) 12.36%
c) 12.55%
d) 12.68%
Explanation:
Data provided in the question:
Nominal rate of return, r = 12% = 0.12
Now,
Effective rate of interest is given as :
i = [ 1 + ( r รท n ) ]โฟ - 1
here,
Number of compounding periods = n
Thus,
a) compounded annually %
n = 1
i = [ 1 + (0.12 รท 1 )]ยน - 1
= 1.12ยน - 1
= 0.12 or 12%
b) compounded semiannually %
n = 2
i = [ 1 + ( 0.12 รท 2 ) ]ยฒ - 1
= 1.06ยฒ - 1
= 0.1236 or 12.36%
c) compounded quarterly %
n = 4
i = [ 1 + ( 0.12 รท 4 ) ]โด - 1
= 1.03ยณ - 1
= 0.1255 or 12.55%
(d) compounded monthly %
n = 12
i = [ 1 + ( 0.12 รท 12 ) ]ยนยฒ - 1
= 1.01ยนยฒ - 1
= 0.1268 or 12.68%