Mathematics for FinanceMTP May 18Question 1275 of 512
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Nominal rate of Interest 9.9%\displaystyle 9.9\% p.a. If Interest is compounded monthly. What will be the effective rate of Interest? (Given (40334000)12=1.1036\displaystyle \left( \frac{4033}{4000} \right)^{12} = 1.1036 )

Options

A10.36%\displaystyle 10.36\%
B9.36%\displaystyle 9.36\%
C11.36%\displaystyle 11.36\%
D9.9%\displaystyle 9.9\%
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Correct Answer

✅ Option a — 10.36%\displaystyle 10.36\%

All Options:

  • A10.36%\displaystyle 10.36\%
  • B9.36%\displaystyle 9.36\%
  • C11.36%\displaystyle 11.36\%
  • D9.9%\displaystyle 9.9\%

Detailed Solution & Explanation

**Derivation of Effective Rate of Interest** Given: - Nominal interest rate (r\displaystyle r) = 9.9%\displaystyle 9.9\% per annum - Compounding Frequency = Monthly (m=12\displaystyle m = 12) - Given: (40334000)12=1.1036\displaystyle \left(\frac{4033}{4000}\right)^{12} = 1.1036 **Step 1: Find the monthly interest rate (i\displaystyle i)** i=rm=9.9%12=0.825%=0.00825 per monthi = \frac{r}{m} = \frac{9.9\%}{12} = 0.825\% = 0.00825 \text{ per month} 1+i=1+0.00825=1.00825=403340001 + i = 1 + 0.00825 = 1.00825 = \frac{4033}{4000} **Step 2: Calculate the effective annual interest rate (E\displaystyle E)** E=(1+i)m−1E = (1 + i)^m - 1 E=(40334000)12−1E = \left(\frac{4033}{4000}\right)^{12} - 1 Using the given value: E=1.1036−1=0.1036 or 10.36%E = 1.1036 - 1 = 0.1036 \text{ or } 10.36\% Hence, **Option A** is the correct answer.

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