Mathematics for FinancePYQ June 19Question 1193 of 512
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The effective rate of interest does not depend upon

Options

AAmount of Principal
BAmount of Interest
CNumber of Conversion Periods
DNone of these
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Correct Answer

✅ Option a — Amount of Principal

All Options:

  • AAmount of Principal
  • BAmount of Interest
  • CNumber of Conversion Periods
  • DNone of these

Detailed Solution & Explanation

**Conceptual Question on Effective Rate of Interest** The formula for the effective rate of interest (E\displaystyle E) corresponding to a nominal interest rate r\displaystyle r compounded m\displaystyle m times a year is: E=(1+rm)m−1E = \left(1 + \frac{r}{m}\right)^m - 1 Looking at the formula: - E\displaystyle E depends on the nominal rate of interest (r\displaystyle r). - E\displaystyle E depends on the number of conversion periods per year (m\displaystyle m). - E\displaystyle E does not contain the principal term (P\displaystyle P) at all, meaning it is independent of the amount of Principal. Thus, the effective rate of interest does not depend upon the **Amount of Principal**. Hence, **Option A** is the correct answer.

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