- This topic has 1 reply, 2 voices, and was last updated 3 years ago by John Moffat.
- You must be logged in to reply to this topic.
Specially for OpenTuition students: 20% off BPP Books for ACCA & CIMA exams – Get your BPP Discount Code >>
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.
If 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.