Mathematics for FinanceMTP Nov 20/ RTP Sep 24Question 1311 of 512
All Questions

The effective rate of interest for one-year deposit corresponding to a nominal 7%\displaystyle 7\% rate of interest per annum convertible quarterly is

Options

A7%\displaystyle 7\%
B7.5%\displaystyle 7.5\%
C7.4%\displaystyle 7.4\%
D7.18%\displaystyle 7.18\%
For any discrepancies in this question, email contact@cadada.in

Correct Answer

✅ Option d — 7.18%\displaystyle 7.18\%

All Options:

  • A7%\displaystyle 7\%
  • B7.5%\displaystyle 7.5\%
  • C7.4%\displaystyle 7.4\%
  • D7.18%\displaystyle 7.18\%

Detailed Solution & Explanation

**Derivation of Effective Rate of Interest** Given: - Nominal interest rate (r\displaystyle r) = 7%\displaystyle 7\% per annum - Compounding Frequency = Convertible quarterly (m=4\displaystyle m = 4) **Step 1: Find the quarterly interest rate (i\displaystyle i)** i=rm=7%4=1.75%=0.0175 per quarteri = \frac{r}{m} = \frac{7\%}{4} = 1.75\% = 0.0175 \text{ per quarter} **Step 2: Calculate the effective annual interest rate (E\displaystyle E)** E=(1+i)m−1E = (1 + i)^m - 1 E=(1+0.0175)4−1E = (1 + 0.0175)^4 - 1 E=(1.0175)4−1E = (1.0175)^4 - 1 **Step 3: Compute the value** (1.0175)4≈1.071859(1.0175)^4 \approx 1.071859 E=1.071859−1=0.071859 or 7.1859%≈7.18%E = 1.071859 - 1 = 0.071859 \text{ or } 7.1859\% \approx 7.18\% Hence, **Option D** is the correct answer.

More Questions from Mathematics for Finance

Ready to Master Mathematics for Finance?

Practice all 512 questions with instant feedback, earn XP, track your streaks, and ace your CA Foundation exam.

Start Practicing — It's Free