Your Bank Account Pays a 5% Nominal Rate of Interest

question 160

Multiple Choice

Your bank account pays a 5% nominal rate of interest. The interest is compounded quarterly. Which of the following statements is CORRECT?

• A) the periodic rate of interest is 5% and the effective rate of interest is also 5%.
• B) the periodic rate of interest is 1.25% and the effective rate of interest is 2.5%.
• C) the periodic rate of interest is 5% and the effective rate of interest is greater than 5%.
• D) the periodic rate of interest is 1.25% and the effective rate of interest is greater than 5%.
• E) the periodic rate of interest is 2.5% and the effective rate of interest is 5%.

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Definitions:

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