An investor can invest money with a particular bank and earn a stated interest rate of 6.60%; however, interest will be compounded quarterly. What are the nominal, periodic, and effective interest rates for this investment opportunity? Interest Rates Nominal rate Periodic rate Effective annual rate

Effective annual rate is 16.31%.

Nominal Rate = 14%

Explanation:

Effective annual rate = [ (1 + 15.40 / 4) ^ 4] - 1

= [ (1 + 3.85%) ^ 4] - 1

= 1.1631 - 1

= 16.31%

Effective annual rate is 16.31%.

Solution for question 2

Nominal Rate = 14%

Effective annual rate = [ (1 + 14 / 2) ^ 2] - 1

= [ (1 + 7%) ^ 2] - 1

= 1.1449 - 1

= 14.49%

Effective annual rate is 14.49%.

Annual rate = 5%