If the Quarterly Rate of Interest Is 2

question 25

Multiple Choice

If the quarterly rate of interest is 2.5% and interest is compounded quarterly, then the EAR is:

• A)10.38%
• B)10.00%
• C)2.50%
• D)none of the above

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Definitions:

Annual Interest Rate

The percentage rate charged or paid over a year for borrowing or saving money.

Present Value

The current value of a future amount of money or stream of cash flows given a specified rate of return, used in discounting to assess investment opportunities.

Compounded Quarterly

Compounded quarterly refers to the calculation of interest on the initial principal and the accumulated interest over previous periods every quarter.

Interest Rate

The percent of principal charged by the lender for the use of its money.