The nominal rate investment ranges from 4.90%, 4.92%, 4.95%, and 4.96%.
Part (c), or IV, III, II, and I, is therefore the right response to the question.
We must now determine the effective interest rate [tex]R_{e}[/tex] , we'll use the formula:-
[tex]R_{e} = (1 + i)^{k} - 1[/tex]
where, i = r / k
Here,
r = interest rate,
I = the nominal interest rate,
k = is the number of times that interest is compounded annually.
(i) 4.87% compounded quarterly
Then i = (4.87 / 100) * 4 =
i = 0.0487 * 4 = 0.012
So, [tex]R_{e}[/tex] = (1 + 0.012)⁴ - 1
[tex]R_{e}[/tex] = 0.0496 = 4.96 %
Therefore, the effective Interest Rate = 4.96%
(ii) 4.85% compounded monthly
Then i = (4.85 / 100) * 12
i = 0.0485 * 12 = 0.0040
So, [tex]R_{e}[/tex] = (1 + 0.0040)⁴ - 1
[tex]R_{e}[/tex] =0.04959 = 4.95 %
(iii) 4.81% compounded daily (365 days)
Then i = (4.81 / 100) * 365
i = 0.0481 * 365 = 0.00013
So, [tex]R_{e}[/tex] = (1 + 0.00013)⁴ - 1
[tex]R_{e}[/tex] = 0.0492 = 4.92 %
(iv) 4.79% compounded continuously
Then i = (4.79 / 100)
i = 0.0479
So, [tex]R_{e}[/tex] = (1 + 0.0479)⁴ - 1
[tex]R_{e}[/tex] = 0.0490 = 4.90 %
Therefore, the nominal rate investment is as follows: 4.90%, 4.92%, 4.95%, and 4.96%.
The right response to the question is section (c), which is IV, III, II, and I.
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