Hi Sir,
I hope you are well.
Please may you elaborate this question and answer a little for me.
What is the effective annual rate of interest of 2.1% compounded every three month?
Answer is 8.67%
My take on this question was to convert nominal rate (2.1%) to effective annual rate by applying this formula (1 + i/m) ^ m – 1. Where ‘m’ is the number of compound periods
‘i’ is the interest rate
Applying this formula my answer isn`t correct.
Please advise.
Many Thanks
Ask the Tutor ACCA MA
Effective annual rate
6y ago#1If there is interest of 2.1% every 3 months, then the effective annual rate ls:
1.021^4 - 1 = 0.0867 (or. 8.67%)
Have you watched my free lectures on this? The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.
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