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If the nominal rate of interest is 12% and is compounded quarterly, the effective rate of interest per annum will be nearly

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UPSC ESE 2020 Paper 1
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  1. 10.8%
  2. 12.6%
  3. 14.4%
  4. 16.2%

Answer (Detailed Solution Below)

Option 2 : 12.6%
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Explanation:

The nominal rate of interest = 12%  (It is compounded quarterly)

Take original value = x

We know that,

Now,

We have four quarters,

Hence, the value after a year = (1 + 0.03)4 x = 1.1255 x

∴ Effective rate of return = 12.55 %

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