Question

12. What is the effective annual rate of 9 percent compounded quarterly?
    a. 9.20 percent
    b. 9.31 percent
    c. 9.48 percent
    d. 9.65 percent

Answer 1

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

r = 9%

t = 4 period since quarterly compounded rate

Effective annual rate = (1+(0.09/4))^4-1

= 1.0225^4 - 1

= 1.09308

= 9.31%

Hence answer b is correct