Question

Wyatt is paying back a loan with a nominal interest rate of 13. 62%. If the interest is compounded quarterly, how much greater is Wyatt’s effective interest rate than his nominal interest rate? a. 0. 96 percentage points b. 0. 40 percentage points c. 0. 25 percentage points d. 0. 71 percentage points.

Answer 1

Wyatt's effective interest rate would be greater than his nominal interest rate by 0. 71 percentage points.

The nominal interest rate is 13. 62% or 0.1362 that would be given an effective rate of interest as follows:

$R=(1+\frac{i}{m})^{m} -1\\=(1+\frac{0.1362}{4})^{4} -1\\=0.1433$

Here, the value of the effective rate of interest, that is 0.1433 that would be multiplied with 100 to get the percentage value of 14.33%

Hence, the difference between effective and nominal interest rates would be:

$14.33-13.62\\=0.71$

Learn more about the effective and nominal rates of interest here:

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