The effective rate of return equivalent to a nominal rate of 12% per annum compounded quarterly is: [Given that: \((1.03)^4=1.1255\)]
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → 12.55%
For a nominal rate r compounded m times a year, the effective rate is
\( \displaystyle r_{\text{eff}} = \left(1 + \frac{r}{m}\right)^{m} - 1 \)
Here r = 0.12 and m = 4:
\( \displaystyle r_{\text{eff}} = \left(1 + \frac{0.12}{4}\right)^{4} - 1 \)
\(r_{\text{eff}} = (1.03)^4 - 1\)
\(r_{\text{eff}} = 1.1255 - 1 = 0.1255\)
So the effective rate is 12.55%.
CBSE Applied Mathematics (Class XII):
Nominal and Effective Rate of Interest
