(a) Rs 5000 is deposited in a term deposit scheme that fetches 6% interest per annum compounded quarterly. What will be the interest after one year? What is the effective rate of interest? (b) Find the compound interest and effective rate of interest if the amount of Rs. 20,000 is deposited in a bank for one year at the rate of 8% per annum compounded semi-annually.
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a nominal interest rate of 6% compounded monthly is equivalent to an effective interest rate of 6.17%. 6% compounded monthly is credited as 6%/12 = 0.005 every month. After one year, the initial capital is increased by the factor (1 + 0.005)12 ≈ 1.0617.
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