Question

The annual nominal rate is j_m = 0.15pa. What is the effective annual rate as a percentage to two decimal places? The number of compounding periods is 8. Enter your answer as a decimal eg 17.42% = .1742 to four decimal places. Accuracy of one basis point. Tip: use excel to get the required accuracy.

Answer 1

Given,

Annual nominal rate (r) = 0.15

Number of compounding periods (m) = 8

Solution :-

Effective annual rate = (1 + r/m)^m - 1

= (1 + 0.15/8)⁸ - 1

= (1 + 0.01875)⁸ - 1

= (1.01875)⁸ - 1

= 1.1602 - 1 = 0.1602