Your bank account pays a nominal rate of interest The interest

Question

Your bank account pays a 5% nominal rate of interest. The interest is compounded quarterly. Which of the following statements is CORRECT?

a. The periodic rate of interest is 5% and the effective rate of interest is also 5%.

b. The periodic rate of interest is 1.25% and the effective rate of interest is 2.5%.

c. The periodic rate of interest is 5% and the effective rate of interest is greater than 5%.

d. The periodic rate of interest is 1.25% and the effective rate of interest is greater than 5%.

e. The periodic rate of interest is 2.5% and the effective rate of interest is 5%.

Answer

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