The effective rate equivalent to a nominal rate of 12% compounded quarterly is: (Given $(1.03)^4=1.1256$)

12.56%

The correct answer is Option (2) → 12.56%

Given nominal rate: $r = 12\%$ per annum compounded quarterly

Quarterly rate: $i = \frac{12}{4} = 3\% = 0.03$

Number of compounding periods per year: $n = 4$

Effective annual rate (EAR): $R = (1 + i)^n - 1$

$R = (1 + 0.03)^4 - 1 = (1.03)^4 - 1$

$(1.03)^4 \approx 1.1255$

$R \approx 1.1255 - 1 = 0.1255 = 12.55\%$