BUSINESS ADMINISTRATION
FINANCIAL MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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10% per annum
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10.10 per annum
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10.25%per annum
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10.38% per annum
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Detailed explanation-1: -The correct answer is d d. 10.38 percent per annum d is the answer to this question.
Detailed explanation-2: -If nominal rate of return is 10% per annum and annual effective rate of interest is 10.25% per annum, The frequency of compounding is: 12 4 2 3.
Detailed explanation-3: -In this question, the nominal interest rate is 16%, with quarterly compounding, interest compounds 4 times a year. Applying the formula, the effective annual rate is: (1+16%/4)4−1=16.99%
Detailed explanation-4: -A statement that the “interest rate is 10%” means that interest is 10% per year, compounded annually. In this case, the nominal annual interest rate is 10%, and the effective annual interest rate is also 10%.
Detailed explanation-5: -The rate of compound interest is commonly expressed as a nominal rate of interest. For example in 10% compounded quarterly, 10% refers to the nominal rate of interest. To calculate the nominal rate of interest, simply multiply the rate of interest per period by the number of periods per year.