A bank pays interest quarterly with an EAR of 99%. What is the periodic interest rate...

Question

Question

A bank pays interest quarterly with an EAR of 99%. What is the periodic interest rate applicable per quarterper quarter?

a. 2.18%

b. 1.74%

c. 2.62%

d. 4.36%

business finance

Answer 1

Answer #1

EAR = (1+ periodic rate)^n - 1

n = number of compounds

=>

9% = (1 + p)^4 - 1

=>

p = (1.09)^(1/4) - 1

= 2.18%

hence choose a)

Answer 2

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