CA Foundation P3 · Chapter 4 · Question 3 of 10
The effective annual rate of interest corresponding to a nominal rate of 12% per annum compounded quarterly is (to two decimals):
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) 12.55%
Explanation
Quarterly rate = 12/4 = 3%. Effective rate E = (1 + 0.03)⁴ − 1 = 1.12550881 − 1 = 0.1255, i.e. 12.55% (rounded to two decimals). 12.36% is the effective rate for half-yearly compounding, (1.06)² − 1.
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