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

Answer :

Answer:

The Periodic rate of interest is 2% and the effective rate of interest is greater than 8%

Explanation:

The formula to calculate effective and periodic i/r is as follow:

Effective rate = ( 1 + Nominal Rate / n) ^ n - 1

Periodic Rate of interest = Nominal rate / n

n: Number of compounding periods per year

In this case, Effective Rate = (1+8%/4)^4 - 1 = 8.24%

                    Periodic Rate of interest = 8%/4 = 2%

--> The correct answer is The Periodic rate of interest is 2% and the effective rate of interest is greater than 8%

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